Tag: Forcible Entry

Commercial Landlord Not Entitled to Double Rent Under Holdover Statute Where Tenant Had Legitimate Belief It Had Right to Possess Space – IL 1st Dist.

I’ve written on here before about how a tenant holding over after a lease expires can lead to a serious case of option paralysis for the landlord.  Questions abound in rapid-fire fashion: should the landlord accept the holdover and continue the lease on the same terms as before? Should the landlord seek double rent under the forcible statute?  Should the landlord refuse to cash any rent checks from the tenant after the lease expires?  What if the landlord desperately needs that post-expiration rent payment?  These are all issues that need to be addressed.  And fast. 

Spatz v. 2263 North Lincoln Corporation, 2013 IL App (1st) 122076, a somewhat dated but relevant case, examines the requirements for a holdover tenancy and the features of an enforceable option to purchase in the context of a commercial lease dispute.

That case’s plaintiff, a successor property owner (to the original landlord), sued the commercial tenant for eviction and past rent damages. The tenant defended the suit, and argued that it exercised an option to purchase the premises from the plaintiff’s predecessor before the lawsuit was filed and therefore was immune from eviction.

The trial court sided with the plaintiff awarding it possession and rental damages but only awarding about half of its claimed attorneys’ fees. The court also denied plaintiff’s request for double rent under Illinois’ holdover statute (735 ILCS 5/9-202).  Both sides appealed.

Affirming the possession order, the appeals court rejected the defendant’s argument that it exercised a purchase option on the property and was therefore a property vendee rather than a lessee.

In Illinois, where a lease contains a purchase option, and the option is exercised and accepted according to its terms, there is no longer a lease.  What results instead is a present contract for the sale of the property.  The parties relationship then morphs from a landlord-tenant one to a vendor-vendee one.  The lessee (now the vendee) then has no further lease obligations.

However, the lessee must exercise the option to purchase to the property in exact conformance with the option. If it fails to do so, the option is deemed unexercised and the landlord can pursue rights under the lease. (¶¶ 27-28).

Here, the court found that the lessee’s purported acceptance of the purchase option was too conditional to be considered a proper exercise of the option.

The court next held that the lessor failed to extend the lease or create a holdover tenancy by accepting partial rent payments from the tenant after the lessor served its 30-day termination notice.

Under Illinois law landlord-tenant law, it is the landlord’s intention, not the tenant’s, that determines whether a holdover tenancy is created. While a landlord’s acceptance of rent following the expiration of a lease can be viewed as an intent to treat a tenant as a holdover, a court objectively looks to landlord’s other conduct – such as efforts to regain the premises – to determine whether the landlord intended to treat a tenant as a holdover. (¶ 37)

The lease specifically allowed the landlord to accept post-default rent payments without extending the lease.  In addition, the landlord sued to evict the defendant. Taken together, this served as clear evidence of a landlord’s intent not to treat the tenant as a holdover.

The First District also affirmed the trial court’s denial of the plaintiff’s claim for double rent under Section 9-202 of the Forcible Statute.

This statute allows a landlord to recover double rent where a tenant willfully holds over. The statute is penal in nature and only applies where a tenant stays in possession in bad faith – basically where it knows it has no right to stay after the lease ends. (¶¶ 44-45).

Where a tenant stays on site “for colorably justifiable reasons” (i.e., under a reasonable claim of right), the landlord cannot recover double rent under the willfully holding over statute. (¶ 44)

Here, the tenant offered evidence at trial showing that it had a legitimate dispute as to whether it had a right to stay in possession after lease expires. Consequently, the appeals court affirmed the trial court’s finding against the landlord on the double rent issue.

Afterwords:

1/ An option to purchase must be exercised in strict conformity with the purchase option;

2/ For a lessor to recover double rent under the holdover statute, the lessor must prove the lessee’s willfull conduct: that the lessee refused to vacate the premises without a good faith basis for doing so;

3/ 30-days’ written notice is required to terminate a month-to-month tenancy.

Brannen v. Siefert: A (Legal Malpractice) Case Study (Ill. First Dist.)

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The Featured Case: Brannen v. Siefert, 2013 IL App (1st) 122067, ¶ 52 (11.19.13)

 

The Facts: Plaintiffs – a land trustee and trust beneficiary – sued the Underlying Defendants, an attorney and his wife, for breach of a written real estate contract for the purchase of a home owned by the plaintiffs.  The strangely worded contract, drafted by Underlying Defendants, called for staggered payments of interest and principle over a several-year period to be credited towards the home’s purchase price.

The Underlying Defendants quickly breached and plaintiffs hired an attorney (the Former Attorneys) to collect the amounts owed under the contract.

The Former Attorneys (a solo practitioner and his professional corporation), unbeknownst to plaintiffs, declared a forfeiture of the contract by written notice to Underlying Defendants.  Several months later, the Underlying Defendants moved out.  At the time they vacated the property, the Underlying Defendants owed plaintiff about $150,000 and hadn’t made any payments for over two years.

The Underlying Case

Displeased with Former Attorneys’ performance, plaintiffs hired substitute counsel who filed a breach of contract suit against Underlying Defendants to recover past and future payments owed under the real estate contract.  The Underlying Defendants successfully moved to dismiss the lawsuit based on the Former Attorneys prior forfeiture notice.  The court found that the Underlying Defendants’ forfeiture remedy foreclosed a damages action by the plaintiffs.  The plaintiffs then sued the Former Attorneys for legal malpractice.

The Malpractice Suit

The thrust of plaintiff’s malpractice suit was that the Former Attorneys committed professional negligence by giving up plaintiffs’ contract rights without first consulting them and by failing to explain the legal effect of that remedial choice.  The Former Attorneys argued they did explain how a forfeiture would impact plaintiffs’ rights and that cancelling the contract was the proper remedy since plaintiffs’ primary goal was to retake the property; not recover damages.

After a trial, a jury entered judgment against the Former Attorneys for $199,500 and they appealed.

Held: Affirmed.  

Rules/Reasoning:

In Illinois, a legal malpractice plaintiff must establish: (1) an attorney owed the plaintiff’s a duty arising from the attorney-client relationship; (2) the attorney breached that duty; (3) the attorney’s breach of duty proximately caused actual damages to the plaintiff.  Expert testimony is usually required to prove that an attorney breached his professional duties to his client.  ¶ 45, 61. 

A legal malpractice plaintiff must prove not only that he would have won the underlying case but that the underlying defendant was solvent enough to pay a judgment.  But the required solvency showing isn’t stringent: the plaintiff doesn’t have to prove a  defendant’s net worth but only needs to show the defendant’s ability to at least partially pay a judgment. ¶ 63.

The jury found the plaintiffs’ expert more believable than the Former Attorneys’.  Plaintiffs’ expert testified that contractual forfeiture was the wrong remedy since under the Illinois Forcible Entry and Detainer Act (the “Forcible Act”) a contract seller like plaintiffs can sue for both possession and money damages.  735 ILCS 5/9-102(a)(5), 9-209 (plaintiff can sue for possession and damages).  The plaintiffs’ expert also testified that by declaring a forfeiture – when both Illinois law and the subject real estate contract allowed multiple remedies – the Former Attorneys prevented the plaintiffs from recovering nearly $150,000 in money damages.  ¶¶ 46-49.

The Court also found that plaintiffs established the Underlying Defendants’ solvency.  The trial evidence demonstrated that the Underlying Defendants could at least partially pay a judgment based on their income and other assets.  ¶ 65.  Because the plaintiffs proved each element of their legal malpractice case, the First District affirmed the jury verdict for the plaintiffs.

Take-aways: (1) To win the legal malpractice ‘case within the case’, a malpractice plaintiff must prove he would have won the underlying case but doesn’t have to precisely prove the malpractice defendant’s net worth. It is enough to show that the defendant has a source of income and is able of paying all or part of a judgment; (2) The Forcible Act provides for possession and money damages to a contract home seller where a buyer breaches an installment sales contract; and (3) the forfeiture remedy should be exercised with extreme caution.  That’s because if you nullify a contract, it can bar a later action to recover money damages for breach of contract.