Uncle Tom’s, Inc. v. Lynn Plaza, LLC, 2021 Ill. App. Ct. (1st) 200205 (May 21, 2021).
In an appeal from an Illinois circuit court’s grant of summary judgment grounded on the theory that a tenant is estopped from challenging disputed charges arising under a lease when the tenant signed an estoppel certificate, the Illinois Court of Appeals (“Court”) held estoppels are enforceable against a tenant’s subsequent actions and claims.
The Appellant, Uncle Tom’s, Inc. (“Tom’s”), operated a restaurant in a strip mall owned by Appellee, Lynn Plaza, LLC (“Lynn Plaza”). The initial term of the parties’ 35–year lease was set to expire in 2013, but in 2005 Tom’s exercised its option to extend the lease another 15 years until 2028. However, the parties could not agree on the square footage to be used in the rent calculation for the option extension. In 2011, Tom’s filed a complaint in circuit court seeking a declaratory judgment to resolve the issue of the base rent during the extension period. Additionally, Tom’s sought an equitable accounting regarding disputed common area maintenance (“CAM”) charges that Tom’s had paid to Lynn Plaza. The disputed charges consisted of management fees accrued during the prior year and easement charges for the use of a neighboring parking lot owned by a power company, which Uncle Tom’s had paid for nearly ten years. Lynn Plaza moved to dismiss the complaint, and the circuit court granted the motion in part as it agreed with Lynn Plaza’s reading of the lease regarding the base rent due during the extension period, but the court denied the motion with respect to the CAM charges.
In 2013, Tom’s moved for partial summary judgment arguing that Lynn Plaza had improperly included management fees and the cost of leasing the ComEd easement used for parking as CAM charges to Tom’s. On a cross–motion for summary judgment, Lynn Plaza pointed to Section 32 of the parties’ lease which obligated Tom’s to pay a 10% pro rata share of CAM costs (costs of maintaining and operating common areas provided by Lynn Plaza for the general use and convenience of Tom’s and other tenants of the strip mall, which included a portion of the parking lot that Lynn Plaza leased from power company ComEd). Additionally, in July 1998, with regard to a loan sought by Lynn Plaza, Tom’s was asked to execute a tenant estoppel certificate representing to the lender that Tom’s had paid rent through the then current month and that “there were no defenses to or offsets against the enforcement of the Lease or any provision thereof by the Landlord.” Tom’s executed the estoppel certificate. Lynn Plaza argued that Tom’s execution of the estoppel certificate represented that Lynn Plaza was not out of compliance under any provisions of the lease and, therefore, Tom’s should be barred from later asserting otherwise. The circuit court granted Lynn Plaza’s motion for summary judgment stating that the ComEd easement charges were properly included as CAM charges under section 32 of the lease and that Tom’s was estopped from challenging the property fees it had been charged since 1997 by the 1998 estoppel certificate. On appeal, the Illinois Court of Appeals (the “Court”) reviewed the grant of summary judgment de novo and affirmed.
On appeal, Tom’s asserted three arguments: (1) the estoppel certificate did not specifically mention the CAM charges at issue and thus did not bar later dispute of those charges; (2) the estoppel certificate only spoke to prior and then current circumstances and thus cannot bar charges assessed against Tom’s after July 1998; and (3) that equitable estoppel simply does not apply because there was no showing of fraud. The Court rejected each of Tom’s arguments.
First, Tom’s argued that the language of the parties’ lease specifically prohibited Lynn Plaza from assessing “any fee or expense for the management of the common area funds” and that Tom’s was never charged the property management fees for the first 18 years of the lease. Lynn Plaza responded by arguing that property management fees are an allowable charge because they are different from fees assessed for the management of funds. With regard to the cost of leasing the parking lot from ComEd, Tom’s argued that such costs are not associated with maintaining and operating common areas, and that the costs are not specifically included in the list of CAM costs in section 32 of the lease. Lynn Plaza argued that the strip mall’s common areas are defined to expressly include “the adjacent Commonwealth Edison right of way . . . used for parking purposes” and that section 32’s illustrative list of CAM costs includes costs related to “leasing.” Lynn Plaza also argues that Tom’s should be estopped from challenging either of the charges because Tom’s executed the 1998 estoppel certificate, which represented that it had no defenses to or offsets against the enforcement of the Lease by the landlord. As a result, Lynn Plaza argued that Tom’s should not be able to subsequently challenge charges it was aware of as of that date.
The Court agreed with the circuit court that by executing the 1998 estoppel certificate, Tom’s was estopped from challenging CAM costs it was aware of on that date. While the circuit court only made its finding on estoppel in relation to the property management fees, the Court held that the argument applies equally to the ComEd leasehold charges. By executing the estoppel certificate, which stated there were “no defenses to or offsets against the enforcement of the Lease or any provision thereof by the Landlord,” Tom’s clearly represented to the third–party lender that Lynn Plaza was not in violation of any lease provisions which would have given Tom’s a defense to enforcement of the Lease, which included the CAM charges. The Court held it was not necessary for the estoppel certificate to contain “an exhaustive list of every provision of the lease with which Lynn Plaza was in compliance.”
Second, the Court rejected Tom’s argument that the estoppel certificate cannot bar charges assessed after July 1998. Tom’s argument was based on K’s Merchandise Mart, Inc. v. Northgate Ltd. Partnership, 359 Ill. App. 3d 1137 (2005), where a tenant was not barred from challenging management fees from its landlord. While the Court acknowledged factual similarities between the cases, it ultimately distinguished K’s Merchandise Mart because in that case, the “events prior to the execution of the estoppel certificate did not rise to the level that [the tenant] should reasonably have known of the management fee.” K’s Merchandise Mart, 359 Ill. App. 3d 1137. Effectively, the tenant in K’s Merchandise Mart did not have contemporaneous knowledge of the fee. Here, by contrast, the Court found that the ComEd leasehold charges (easement charges for the parking lot) had appeared on itemized CAM statements Tom’s received from Lynn Plaza for nearly a decade, and while the property management fee appeared only six months before the certificate was signed, the charge was flagged with a notation, calling it to Tom’s attention. As a result, Tom’s was aware of the significance of the disputed charge when it executed the estoppel certificate and, therefore, the certificate can operate as a bar on the dispute of charges assessed after July 1998.
Lastly, the Court summarily rejected Tom’s argument that equitable estoppel does not apply because there was not a showing of fraud. The Court agreed with the circuit court that the finding of estoppel was based on Tom’s execution of the estoppel certificate, not on any allegation of fraud and thus it is immaterial whether or not there has been a showing of misrepresentation of material fact.
By Michael Robson (Greenberg Traurig LLP)