Legal case studies this issue: commercial tenant may waive lessor’s statutory requirement to mitigate damage; warranty of habitability to subcontractors; owners’ oral agreement to rent property must be unanimous; six-month delay in issuing weed citation did not violate due process; horse breeder’s zoning contest continues after years of litigation; and township’s failure to submit new road tax to referendum subject to challenge only through tax-objection procedures. 

Lisa Harms HartzlerResearch and analysis by Lisa Harms Hartzler,
Sorling Northrup Attorneys

Commercial tenant may waive lessor’s statutory requirement to mitigate damages when lessee abandons property

In The Takiff Properties Group Ltd. #2 v. GTI Life, Inc., 2018 Il App (1st) 171477, the defendant, a commercial tenant, signed a lease with plaintiff landlord that was extended through October 2014. Sometime after March of that year, defendant abandoned the premises. Landlord did not try to relet the premises until that summer and another tenant was not signed until August. The lease contained a provision giving the landlord the option to terminate possession upon lessee’s abandonment and relet the premises, but it was not required to do so. When the landlord sued the tenant for unpaid rent, the tenant asserted that the landlord had a statutory duty to mitigate its damages by reletting the property, that the landlord did not reasonably attempt to relet the premises, and that such a statutory duty could not be waived in the lease.

The appellate court held that Section 9‑213.1 of the Illinois Code of Civil Procedure created a duty for the landlord to mitigate damages that can be asserted as a defense by a tenant. Where a landlord cannot demonstrate that it took reasonable steps to mitigate damages, the award of any damages will be reduced by those losses the landlord could reasonably have avoided. However, the court concluded that there was nothing in the statute prohibiting two commercial parties without any disparity in bargaining power from agreeing to waive that duty nor was such a waiver against public policy. The trial court’s enforcement of the contractual provision against the tenant was affirmed.

Illinois Supreme Court reverses appellate court’s extension of warranty of habitability to subcontractors

In Sienna Court Condominium Association v. Champion Aluminum Corporation, 2018 IL 122022, the Illinois Supreme Court reversed an appellate court decision reported in the November 2017 Legal Case Studies. That 2017 case had allowed a complaint to proceed against subcontractors alleging breach of the implied warranty of habitability for latent defects in newly-constructed condominiums. That decision was based on a 1983 appellate court case that extended the warranty of habitability to subcontractors when the purchaser had no recourse for a remedy against a bankrupt builder-vendor. When the 2017 Sienna Court case came to the Supreme Court on appeal, the issue ostensibly was what was meant by “no recourse” if the bankrupt builder had significant insurance and a “warranty fund” that could be tapped to remedy latent defects.

The Illinois Supreme Court, however, first determined that the issue of what “no recourse” meant was not the correct question. Rather, the threshold issue to be decided was whether a subcontractor of a builder-vendor could ever be liable for an implied breach of the warranty of habitability to the buyer. The court emphasized that the warranty was an implied term in the contract between the builder-vendor and the buyer. Its breach allowed a homeowner to recover for latent defects that interfere with the home’s intended use. That interference was a pure economic loss, liability for which could not be extended to persons with whom the homeowner did not have a contract.

Because the defendant subcontractors of the builder-vendor had contracts only with the builder-vendor, they had no contractual obligations to the buyer-homeowner. The court overruled the 1983 case and reversed the Sienna Court trial and appellate court decisions. It ordered the plaintiff’s complaint against the subcontractors dismissed.

Owners’ oral agreement to rent property must be unanimous

In Schroeder v. Post, 2019 IL App (3d) 180040, 200 acres of farmland was owned 75% by the plaintiff and 25% by her brother, the defendant’s father. The defendant had farmed the land for several years for a cash rent. By October of 2016, defendant had failed to pay nearly $6800 owed to plaintiff for that year’s rent. Plaintiff gave defendant written notice of termination and demanded possession by the next February. Defendant’s father, however, disagreed with plaintiff and told defendant to continue farming. No rent was paid to plaintiff for the 2017 crop year. Plaintiff sued and was awarded possession plus the 2016 rent that was due and over $55,000 for 2017, which included double rent as provided by statute for holding over. Defendant appealed the court’s double rent award to plaintiff.

The statute awarding double rent was intended to discourage tenants from holding over. However, the penalty is not imposed if the tenant had a reasonable belief that he was holding over rightfully. In this case, the appellate court held that defendant’s belief was not reasonable. The court cited a 2002 case holding that “a year-to-year tenancy terminates in its entirety once unanimous consent to continue the tenancy no longer exists.” Consequently, when the plaintiff unilaterally terminated the oral lease with defendant, even though the 25% owner disagreed, the lease ended. The award of double damages was affirmed.

Six-month delay in issuing weed citation did not violate due process

In Tucker v. City of Chicago, 907 F.3d 487 (7th Cir. 2018), the plaintiff purchased a lot for $1.00 from the city under Chicago’s “Large Lot Program” with the intention of transforming it into a community garden. In June of 2015, an inspector for the City’s Department of Streets and Sanitation inspected plaintiff’s property and concluded that its average height of weeds exceeded 10 inches and took two photographs. Six months later, the city issued a citation to plaintiff for violation of the city’s weed ordinance. Plaintiff appeared before an administrative law judge and testified that weeds on the lot never exceeded an average of 10 inches but, of course, she had no photographs or any other evidence to contradict the inspector’s report. The administrative law judge found plaintiff guilty and fined her $650.

Instead of appealing the decision to the state circuit court, plaintiff filed a complaint in the federal district court, alleging a violation of her right to procedural due process because of the six-month delay between the inspection and the issuance of a citation. The district court dismissed her complaint. On appeal, the federal circuit court held that procedural due process did not require immediate notice and prosecution. There is always a delay in prosecuting crimes. Typically, a statute of limitations defines what constitutes too much delay. However, the City’s ordinance (and most ordinances) does not contain limitations provisions. Consequently, the court had to determine whether the delay in this case violated “fundamental conceptions of justice which lie at the base of our civil and political institutions … and which define the community’s sense of fair play and decency.”  In this case, the court compared the city’s citation procedure against the timing of other criminal prosecutions and found that the hearing the plaintiff received more than six months after inspection did not present an unreasonable risk of an erroneous deprivation of property. The court affirmed dismissal of the case.

Horse breeder’s zoning contest continues after years of litigation

In Drury v. Village of Barrington Hills, 2018 IL App (1st) 173042, the legal wrangling over a horse breeder’s business began in 2006, when the village amended its zoning code to include residential horse boarding as a “home occupation” with restrictive hours of operation. The horse breeder was cited for allegedly operating his business in violation of the ordinance. He filed suit to challenge its validity. Over the ensuing 12 years, the horse breeder, village residents, and the village itself, engaged in litigation in three different lawsuits. The latest decision involved residents’ challenge to another ordinance adopted in 2015 favoring the horse breeder. It permitted large-scale horse boarding operations on residential property throughout the village “as a matter of right,” retroactive to 2006. This ordinance effectively validated the horse breeder’s operations from their inception and eliminated the fines he had accumulated from violating the original home occupation ordinance.

In this case, the plaintiffs argued that the 2015 ordinance violated substantive due process because it was passed for the sole benefit of the horse breeder and was wholly unrelated to the public health, safety and welfare. The trial court dismissed the complaint, finding that the plaintiffs had simply asked the court to take sides in a policy debate. The appellate court reversed, holding that the case should not have been dismissed at that initial stage of the pleadings. The court explained that the village’s authority to pass zoning ordinances was derived from police powers which enabled it to legislate for the health, safety and general welfare of its residents. Police powers are broad. Courts are deferential to such legislation and, except in cases involving factors like race and gender, apply a “rational basis” test to determine validity. Nevertheless, police powers cannot be exercised arbitrarily and must bear a rational relationship to the public welfare.

In this case, the court reviewed the allegations in the complaint that the 2015 ordinance was passed for the sole benefit of one person, the horse breeder, and that it was not based on any facts or findings demonstrating that it was passed for the public good. The court noted alleged procedural irregularities in the ordinance’s passage, its timing, its retroactivity, its permitted use “as of right” as opposed to use by special permit common in other municipalities, and the fact that the village repealed it within one year. The court was careful to explain that it was not deciding whether the ordinance was valid or not—just that the factual allegations of the complaint were adequate to support the due process challenge to the ordinance as being arbitrary, should the allegations be found to be true. The case goes back to the trial court for further proceedings.

Township’s failure to submit new road tax to referendum subject to challenge only through tax-objection procedures

In Reno v. Newport Township, 2018 IL App (2d) 170967, a Lake County township called a special township meeting at which a permanent road tax was approved by a majority of residents attending the meeting. The plaintiff filed a class action suit against the township alleging that this manner of approval violated the Property Tax Extension Limitation Law (PTELL), which required approval of the tax by voters at a general election. The court affirmed the lower court’s dismissal of the suit because the plaintiff’s only recourse to challenge a tax assessment was to pay the tax and file a tax-objection complaint.

The appellate court ruled that a purpose of PTELL was to give a township road district’s residents the opportunity to approve or reject a proposed new-rate permanent road-fund tax at a general election. However, the statute also provided that tax-objection complaint procedures provided a “complete remedy for any claims with respect to those taxes, assessments, or levies.”  In this case, the plaintiff sought to challenge a tax, assessment or levy and sought a refund of taxes paid. Even though the tax was levied in a procedurally deficient manner, the tax was not “unauthorized by law” because the township had authority to levy taxes. Therefore, the plaintiff was limited to a tax-objection complaint. Furthermore, PTELL explicitly prohibited class action suits. The court noted that taxpayers could still “band together” in tax-objection proceedings to spread out the cost.