Real Estate Roundup

Sharp  Thinking

No. 201  Perspectives on Developments in the Law from Sharp-Hundley, P.C.  October 2021

Defective Tenancy By Entirety Creates Joint Tenancy

A defective attempt to create a tenancy by the entirety results in a joint tenancy, not a tenancy in common, a panel of the Appellate Court in Chicago has ruled.

In In re Estate of Aryeh, 2021 IL App (1st) 192418, the parties attempted to create an entirety tenancy when they already were owners of another entirety property.  Because parties can own only one property by the entirety, ownership of the second property as tenants by the entirety failed, the panel noted.  However, that did not mean that the property reverted to tenancy-in-common ownership.  “[T]enancy by the entirety is a form of joint tenancy expressly reserved for married couples,” the panel observed.  “[W]e find that the unsuccessful creation of a tenancy by the entirety in a deed to a married couple simply becomes a joint tenancy.”

Commercial Tenant May Not Set Off Rent Against Breaches

Illinois recognizes a “general principle that a commercial tenant’s obligation to pay rent is independent of a landlord’s obligation regarding the premises”, so the commercial tenant cannot withhold rent for alleged breach by the landlord of other obligations, a panel of the Appellate Court in Chicago held recently.

Ruling in Greggs USA, Inc. v. 400 E. Professional Assoc., LP, 2021 IL App (1st) 200959, the court dealt with a tenant who paid no rent after the landlord allegedly breached lease terms regarding a heating-ventilation-air conditioning system.  The lease specifically provided that “all rent shall be paid to landlord without offset or deduction, and the covenant to pay rent shall be independent of every other covenant in this lease.”

However, the panel did not simply rely on that express term in holding that the tenant was in breach of contract. It relied upon a general principle that “[w]hen a landlord’s breach of covenant can be compensated in damages, that covenant is independent of and not a condition precedent to the tenant’s rent payment, and the tenant must perform its own covenants and then may rely on a claim for damages.”

No Implied Fitness Warranty In Real Estate, Court Says

There is no implied warranty of fitness for a particular purpose in real estate, the court in Greggs USA, Inc. v. 400 E. Professional Assoc., LP, 2021 IL App (1st) 200959, also ruled.

In Greggs the landlord rented premises for a bakery and restaurant and the tenant contended that the premises were not fit for that purpose.  The court rejected that argument.

“Even in a commercial lease of premises that will be used for a specific purpose, there is no implied covenant that the premises are fit for that purpose,” it said.  “Although Illinois common law recognizes an implied warranty of habitability in real estate transactions, the duty extends only to residential property.  The comparable provision of an implied warranty of fitness for a particular purpose is applicable only to the sale of goods.”

Changing Locks Constitutes Constructive Eviction

Illinois law grants a landlord a common-law lien on a tenant’s personal property for the non-payment of rent, and that lien is perfected by filing a distress warrant and an inventory with the clerk of court.

However, the landlord who then changes the locks on the premises effects a constructive eviction which bars the collection of future rent under an acceleration clause.

So ruled the Appellate Court’s Second District recently in Ivanhoe Shoppes, LLC, v. Bauspies, 2021 IL App (2d) 200582.

In Ivanhoe, the plaintiff leased premises to defendants, who operated a fitness facility therein.  When defendants became some $20,900 in arrears on rent, plaintiff filed a distress warrant with the court (see 735 ILCS 5/9-301 et seq.) and seized the fitness equipment.  Because the equipment could not conveniently be relocated to another location, plaintiff then changed the locks to secure the equipment from defendants.

“Plaintiff was entitled to seize the exercise equipment and take reasonable steps to prevent defendants from moving or selling the equipment,” the court said.  “However, changing the locks was not a proper remedy,” it added, noting that the Eviction Act (735 ILCS 5/9-101 et seq.) prohibits self-help through changing locks.

“By changing the locks, plaintiff deprived defendants of their enjoyment and use of the premises to conduct their fitness business.  Thus, plaintiff constructively evicted defendants.”  The constructive eviction thwarted plaintiff’s claim to future rent, the court ruled.  “Because we hold that plaintiff constructively evicted defendants and that defendants were not obligated to pay accelerated rent, we need not decide whether plaintiff made reasonable efforts to mitigate damages by attempting to rent to someone else.”