87th Street Gets 86’d.  Court Denies Landlord’s Claim for Rent Owed to Predecessor.

September 2018

In June 2018, an Illinois Appellate Court upheld a lower court’s decision that a landlord lacks standing to sue a tenant for past due rent that accrued prior to the landlord acquiring the property. In 1002 E. 87th Street LLC v. Midway Broadcasting Corporation (2018 IL App (1st) 171691 (June 5, 2018)), Midway Broadcasting Corporation (“Midway”) operated a radio station in Chicago, Illinois, out of space owned by 1002 E. 87th Street, LLC (“87th Street”). 87th Street was not the original landlord under the lease, but had come into possession of the property after the original owner (Jeff BV Commercial, LLC) sold the space to Glass Management Services, Inc., who subsequently sold to 87th Street.

Shortly after acquiring the property, 87th Street attempted to evict Midway based on 87th Street’s claim that Midway owed $72,810 in past due rent from the period when Jeff BV owned the property. Two years after 87th Street’s original claim was filed, Midway filed a motion to dismiss, claiming that 87th Street lacked standing to sue for the past due rent, since the amounts accrued prior to 87th Street becoming the landlord. The trial court granted the motion to dismiss; 87th Street appealed.

In 87th Street’s appeal, it asserted that it had standing to sue Midway based on the language of the lease, which allowed 87th Street, as the landlord, to demand strict compliance with the terms thereof. The lease did contain standard provisions stating that the tenant was to pay rent “without abatement, demand, deduction or offset whatsoever”, that the landlord under the lease included its assigns and successors in title, and that “[n]o failure of landlord to exercise any power . . . or to insist upon strict compliance . . . shall constitute a waiver of Landlord’s right to demand exact compliance with the terms [of the lease].” The appellate court noted that while a landlord generally does have standing to sue a tenant for unpaid rent, a new landlord is not entitled to bring suit to recover rent that accrued before the new landlord owned the property—a finding that could not be overcome by the non-waiver provision in the lease. Rather, whoever was the landlord at the time the rent accrued is the party that retains the right to recover any past due rent. The non-waiver provision that 87th Street urged the court to rely on does not permit a new landlord to demand strict compliance with obligations that were owed to a prior landlord.

Midway offers a few important reminders for landlords involved in commercial real estate transactions. Parties looking to purchase property should keep in mind that they may not be able to go after an existing tenant for rents owed prior to the purchase, and that an eviction based on past due rents that accrued prior to the landlord’s ownership of the property is likely to fail. Instead, the new landlord will need to wait until there is a default in payment after the purchase transaction closes. Tenants should also be aware that a new landlord cannot demand payment of such past due rents (although the prior landlord would still be able to recover).  One way for new landlords to protect themselves is to include a provision in their purchase and sale agreements that requires the seller to assign all of their rights to back rent to the buyer (note that in this case, that would not have helped the new landlord since the outstanding rent was not owed to the immediate prior owner).