Court Opinion

ID: 4266596
Source: CourtListenerOpinion
Date Created: 2018-04-23 22:05:56.868006+00
Date Added: 2024-06-11T13:04:09.890598
License: Public Domain

2018 IL App (1st) 173106

                                                                         FIRST DIVISION
                                                                         April 23, 2018

No. 1-17-3106

                                       IN THE
                             APPELLATE COURT OF ILLINOIS
                                   FIRST DISTRICT

LOMTO FEDERAL CREDIT UNION,                   )            Appeal from the
                                              )            Circuit Court of
 Plaintiff,                                   )            Cook County.
                                              )
v.                                            )
                                              )
6500 WESTERN LLC; CHICAGO TAXI                )
LEASING, INC.; TAXI TOWN, INC.; UNKNOWN)                   No. 17 CH 05789
OWNERS and NON-RECORD CLAIMANTS,              )
                                              )

 Defendants                                   )

                                              )
(Michael J. Eber, Receiver-Appellee;          )            Honorable
6500 Western LLC, Chicago Taxi Leasing, Inc., )            Darryl B. Simko,
and Taxi Town, Inc., Defendants-Appellants).  )            Judge Presiding.

       JUSTICE HARRIS delivered the judgment of the court, with opinion.
       Presiding Justice Pierce and Justice Mikva concurred in the judgment and opinion.

                                           OPINION

¶1     This appeal involves an interlocutory order, granting the receiver’s motion to increase

rent, determine market value rental rates of property, and employ a real estate valuation

professional. On appeal, defendants, 6500 Western LLC, Chicago Taxi Leasing, Inc. (Chicago

Taxi), and Taxi Town, Inc. (Taxi Town), contend the court erred in (1) permitting an increase in

rent pursuant to section 15-1704(g) of the Illinois Mortgage Foreclosure Law (735 ILCS
No. 1-17-3106

5/15-1704(g) (West 2016)), when a lease agreement exists, and (2) permitting an increase to the

market rental rates for the property. For the following reasons, we vacate the order and remand

for further proceedings consistent with this opinion.

¶2                                       JURISDICTION

¶3     The trial court entered an interlocutory order, granting the receiver’s motion on

November 21, 2017. Defendants filed their notice of appeal on December 15, 2017. Accordingly,

this court has jurisdiction pursuant to Illinois Supreme Court Rule 307(a)(3) (eff. Nov. 1, 2017),

governing interlocutory appeals as of right.

¶4                                      BACKGROUND

¶5      The property at issue is located at 6500 N. Western Avenue in Chicago, Illinois. The

commercial property is improved with a 28,200-square-foot building used by defendants

Chicago Taxi and Taxi Town. On April 21, 2017, plaintiff LOMTO Federal Credit Union filed

its commercial foreclosure action against defendants. On May 10, 2017, plaintiff filed a motion

for immediate possession and appointment of a receiver.

¶6     Adrian Tudor, the manager of 6500 Western LLC, is also president of both Chicago Taxi

and Taxi Town. On or about June 1, 2017, 6500 Western LLC executed leases with Chicago

Taxi and Taxi Town for “that portion of the premises *** currently occupied by the Tenant(s).”

Under each lease, the tenant pays $4000 per month as rent, and the lease term expires on May

31, 2022. The lease agreements contain no provision for a security deposit or for payment of

utilities, and the landlord is responsible for maintenance and repairs during the lease term. The

combined rent from these leases is $8000 per month, which is approximately $3.40 per improved

square foot per year.

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No. 1-17-3106

¶7     On June 16, 2017, the trial court granted plaintiff’s motion for immediate possession and

to appoint a receiver. On July 24, 2017, the receiver sent a letter to 6500 Western LLC listing the

estimated monthly expenses of the property per month, including $11,822 for property taxes,

$935.26 for insurance, $2000 for snow removal and landscaping, $2000 for repairs to the roof

and sewer/drainage systems, and $2000 placed in a capital repair reserve escrow. This total

estimated cost of $18,758.03 per month did not include utilities the landlord may be responsible

for under the lease agreements. The receiver informed 6500 Western LLC that the $8000 per

month received in rent “is not sufficient to cover the expenses and it leaves no cash available to

pay current debt service (principal and interest payments) nor any reasonable rate of return.”

According to preliminary market rate data gathered by the receiver, a more appropriate monthly

rent would total $37,600 per month.

¶8     On August 7, 2017, the receiver filed his first report, which included the detailed monthly

cost estimates in the July 24, 2017, letter. The court approved the report and on September 6,

2017, the receiver filed his motion to increase rent, determine market value rental rates of

property, and employ a real estate valuation professional. In the motion, the receiver set forth the

monthly landlord costs of the property listed in his first report, but added $3506.38 for utility

payments for a total of $22,264.41 per month. The motion requested that the trial court “enter an

order raising the rent, on an interim basis, to be paid by Taxi Town, Inc. and Chicago Taxi

Leasing, Inc., to an aggregate amount that is sufficient to cover maintenance, repair and

operation of the property on a monthly basis.”

¶9     The receiver also requested that the court enter an order to allow for “a real estate

valuation professional to determine market-based rental rates for the Property and subsequently

hold a hearing to determine whether rental rates shall be adjusted to market rate or kept at

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No. 1-17-3106

operating cost levels.” In support, the receiver filed an affidavit of Brent L. Burden, a licensed

real estate broker. Burden measured the 6500 N. Western Avenue property against two

comparable commercial properties in the area using Costar, a “widely accepted *** industry

standard tool for conducting research related to commercial property rentals and sales.” Property

located at 6100 N. Clark Street, when used as an auto dealership, had a rental rate of $18.56

annually per square foot, triple net. The property at 6017 N. Western Avenue, which has been

used as an auto dealership and taxi parking lot, had starting rental rates of $19 annually per

square foot, triple net. Triple net pricing “refers to a common industry standard where *** the

tenant is responsible for paying 1) property taxes; 2) building insurance; and, 3) any common

area maintenance during the lease term. These costs are paid in addition to the rent.” Therefore,

“[g]ross rental rates are usually higher than those calculated on a triple net basis because [in

those cases] the landlord pays property taxes, insurance, and maintenance costs out of the rent

received from the tenant.”

¶ 10   Burden found that in the lease agreements signed by Chicago Taxi and Taxi Town, “the

tenants appear to be responsible solely for the payment of a flat rental rate and the landlord pays

property taxes, insurance, and maintenance costs for the Property. This equates to approximately

$3.43 annually per square foot, gross” which “falls substantially below market value.” In his

opinion, the rental rates of the 6500 N. Western Avenue property “fall in the range of $14 to $18

annually per square foot, triple net.”

¶ 11   In response, defendants argued that section 15-1704(g) does not allow a receiver to seek

an increase in rent when a lease agreement already exists and, alternatively, that the receiver did

not meet his burden in order to increase the rent. After hearing oral argument, the trial court

granted the receiver’s motion and allowed him to increase the rental rates “to the rates specified

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No. 1-17-3106

in the Affidavit, to wit, $14/square foot to $18/square foot annually, triple net.” The court denied

the receiver’s request for retroactive application of his motion and ordered that the increased

rates take effect on the day of the order, November 21, 2017. Defendants timely appealed.

¶ 12                                        ANALYSIS

¶ 13   On appeal, defendants contend the trial court erred in allowing the receiver to increase

rents because section 15-1704(g) only authorizes an increase when a party is occupying property

without a lease agreement, and Chicago Taxi and Taxi Town are paying rent pursuant to lease

agreements. When construing a statute, the primary goal is to ascertain and give effect to the

legislature’s intent as reflected in the plain and ordinary meaning of the statutory language itself.

People v. Lloyd, 2013 IL 113510, ¶ 25. “A court must view the statute as a whole, construing

words and phrases in light of other relevant statutory provisions and not in isolation.” People v.

Perez, 2014 IL 115927, ¶ 9. Likewise, a court must give effect to every word, clause, and

sentence of a statute if possible, and no part should be rendered superfluous. Id. The court may

also “consider the reason for the law, the problems sought to be remedied, the purposes to be

achieved, and the consequences of construing the statute one way or another.” Id. We review

questions of statutory construction de novo. Evanston Insurance Co. v. Riseborough, 2014 IL
114271, ¶ 13.

¶ 14   Section 15-1704(g), titled “Increase of rents,” provides:

       “Notwithstanding any other provision of this Article, a receiver shall not charge an

       occupant of the mortgaged real estate a rental amount above that which the occupant had

       been paying for use and occupancy of the mortgaged real estate prior to the appointment

       of a receiver without leave of court. The court may allow an increase of rent if, upon

       motion by the receiver, the court finds by a preponderance of the evidence, that the

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       increase of rent is necessary to operate, manage, and conserve the mortgaged real estate

       pursuant to this Section. *** Nothing in this subsection (g) shall alter the terms of any

       lease agreement.” (Emphasis added.) 735 ILCS 5/15-1704(g) (West 2016).

¶ 15   Defendants argue that the emphasized phrase limits the occupants subject to increased

rents to those who are paying for use and occupancy, and does not include occupants who signed

lease agreements. Although “use and occupancy” is not defined in the statute, defendants point to

its use in section 9-201 of the Forcible Entry and Detainer Act (id. § 9-201(2)) as guidance.

Section 9-201 states that when “lands are held and occupied by any person without any special

agreement for rent,” landowners may recover rent “or a fair and reasonable satisfaction for the

use and occupation thereof.” Id. Since section 9-201 involves the recovery of rent for “use and

occupation” in cases where no lease agreement exists, defendants contend that the phrase “use

and occupancy” in section 15-1704(g) also refers only to persons occupying property without a

lease agreement.

¶ 16   We disagree. Although defendants cite cases where no lease agreement exists and “the

law implies a promise on the part of the occupant to pay *** for use and occupation thereof,”

(internal quotation marks omitted) (Board of Directors of the Warren Boulevard Condominium

Ass’n v. Milton, 399 Ill. App. 3d 922, 926 (2010)), payment under “rental agreements” and

payment for “use and occupancy” are not mutually exclusive. Generally, “rent” has been

“ ‘defined as the recompense for the use and occupancy of lands,’ ” regardless of whether an

agreement exists between the parties. Chicago Housing Authority v. Bild, 346 Ill. App. 272, 276

(1952) (involving a lease agreement between the parties) (quoting Stein v. Stely, 32 S.W. 782,

783 (Tex. Civ. App. 1895)). In fact, the phrase “use and occupancy” as it pertains to rental

agreements can be found in the Evanston City Code as well as the Chicago Municipal Code.

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Section 5-3-2(A) of the Evanston City Code defines “rental agreement” as “A written agreement

*** embodying the terms and conditions concerning the use and occupancy of a dwelling unit

and premises.” Evanston City Code § 5-3-2(A) (Jan. 23, 2002). Likewise, section 5-12-030 of

the Chicago Municipal Code states that “ ‘Rental agreement’ means all written or oral

agreements embodying the terms and conditions concerning the use and occupancy of a dwelling

unit by a tenant.” Chicago Municipal Code § 5-12-030(a) (amended May 12, 2010).

¶ 17   Also, “[w]e must examine the [statutory] language as a whole and consider each part or

section in connection with every other part or section.” Northwest Diversified, Inc. v. Mauer, 341
Ill. App. 3d 27, 36 (2003). Section 15-1704 sets forth the powers and duties of receivers

appointed by the court. According to the plain language of the statute, receivers “shall have full

power and authority to operate, manage and conserve” the subject property, including the

collection of “rents, issues and profits from the mortgaged real estate.” 735 ILCS

5/15-1704(b)(2) (West 2016). Subsection (c) specifically lists duties of the receiver in managing

the property. However, these duties only apply “to the extent the receiver receives sufficient

receipts from the mortgaged real estate.” Id. § 15-1704(c). Subsection (g) provides that in cases

where receipts from the property prove insufficient, the receiver may file a motion showing an

“increase of rent is necessary to operate, manage, and conserve the mortgaged real estate

pursuant to this Section.” Id. § 15-1704(g).

¶ 18   Reading section 15-1704 as a whole, the receiver has “full power and authority to

operate, manage and conserve” the mortgaged real estate by using receipts from the property,

and subsection (g) allows the receiver to seek an increase in rent if the receipts prove insufficient

for him to perform his duties. Nothing in the statutory language indicates an intent to allow

increases only from occupants who pay rent without a lease agreement. Rather, limiting the

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No. 1-17-3106

application of subsection (g) in such a manner defeats the legislature’s intent, since the receiver’s

ability to obtain receipts necessary to operate, manage, and conserve the property would be

restricted. Courts will not read into a statute limitations or conditions that depart from the

legislature’s intent as indicated by the plain meaning of the statutory language. Northwest

Diversified, Inc., 341 Ill. App. 3d at 36. Furthermore, under defendants’ interpretation if all the

occupants of a property had lease agreements, subsection (g) would have no application

whatsoever. “[C]ourts must give effect to every word, clause, and sentence and may not read a

statute so as to render any part inoperative, superfluous, or insignificant.” Newland v. Budget

Rent-A-Car Systems, Inc., 319 Ill. App. 3d 453, 456 (2001).

¶ 19    Defendants also contend that subsection (g) applies only to occupants without lease

agreements because it uses the word “occupant” rather than “lessee,” and a party under a lease

agreement is generally referred to as a “lessee.” As further support, defendants point to the last

sentence of the provision, which states that “[n]othing in this subsection (g) shall alter the terms

of any lease agreement.” 735 ILCS 5/15-1704(g) (West 2016). They argue that raising rents can

only apply to parties without lease agreements because such an increase would alter the terms of

an existing lease contrary to the intent stated in the last sentence.

¶ 20    First, we disagree with defendants’ interpretation of “occupant” in subsection (g).

Throughout section 15-1704, “occupant” is used to describe all parties who occupy a dwelling

unit in the mortgaged real estate without limitation. See id. § 15-1704(c)(2.5) (the receiver “shall

accept all rental payments from an occupant”); id. § 15-1704(f)(1) (the receiver shall identify “all

occupants of dwelling units of the mortgaged real estate”); id. § 15-1704(f)(2) (“the appointed

receiver shall notify all known occupants of dwelling units”). The term “lessee” appears only

once, in subsection (b)(1), which provides that the receiver shall have the authority to “secure

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No. 1-17-3106

tenants and execute leases for the real estate” and that “nothing in this Section shall affect the

legal rights of any lessee with respect to the safety and habitability of the residential real estate.”

Id. § 15-1704(b)(1). The fact that “lessee” is used only in the subsection specifically dealing with

the execution of leases by the receiver, but “occupant” is used throughout the rest of the section

to describe any party dwelling in a unit of the mortgaged property, indicates that the legislature

intended for the remaining provisions of section 15-1704 to encompass all occupants of the

property regardless of whether a lease agreement exists.

¶ 21   Additionally, increasing rents pursuant to subsection (g) does not alter the terms of

defendants’ existing lease agreements. Section 15-1704(g) was in effect when the parties

executed their lease agreements. “[C]ontracting parties are presumed to have entered into the

contract with a knowledge of the existing law as it relates to their agreement,” and by operation

of law, such “laws, statutes and ordinances become implied terms of the contract.” S&D Service,

Inc. v. 915-925 W. Schubert Condominium Ass’n, 132 Ill. App. 3d 1019, 1023 (1985). Since the

lease agreements did not specifically exclude the effect of subsection (g), defendants are deemed

to have accepted this provision as an implied term of their agreements. Id. The subsection’s last

sentence merely reflects this rule of law by stating that an increase in rent pursuant to this

statutory provision does not alter the terms of any lease agreement.

¶ 22   For these reasons, we find that section 15-1704(g) allows the receiver to seek an increase

in rent from defendants through leave of court.

¶ 23   Alternatively, defendants contend that if subsection (g) allows the receiver to seek an

increase in their rent, the trial court exceeded its authority when it allowed an increase to the

market rental rate without evidence to support such an increase. Subsection (g) authorizes the

court, upon motion by the receiver, to allow an increase in rent an occupant has been paying if it

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finds by a preponderance of the evidence that the increase “is necessary to operate, manage, and

conserve the mortgaged real estate pursuant to this Section.” 735 ILCS 5/15-1704(g) (West

2016). It follows that the increased rate must be an amount “necessary to operate, manage, and

conserve” the property.

¶ 24   To determine the appropriate rate pursuant to subsection (g), we look at the plain

language of the statute. Section 15-1704, which grants the receiver “full power and authority to

operate, manage and conserve” the property (id. §5/15-1704(b)), also specifies in subsections (c)

and (d) the receiver’s duties and how receipts from the mortgaged property shall be allocated.

Subsection (c) provides that the receiver “must manage the mortgaged real estate as would a

prudent person,” and in managing the property, the receiver shall maintain casualty and liability

insurance, “use reasonable efforts to maintain the real estate *** in at least as good condition as

existed at the time the receiver took possession,” accept all rental payments, “apply receipts to

payment of ordinary operating expenses,” and pay any shared or common expenses. Id.

§ 15-1704(c). The receiver may also make other repairs and improvements necessary to comply

with building codes, “hold receipts as reserves reasonably required for the foregoing purposes,”

and take actions “reasonably necessary to conserve the mortgaged real estate.” Id. To perform

these duties, the receiver uses receipts received from the property. Subsection (d) provides that

the receiver shall first use receipts to reimburse the receiver and for payments of insurance

premiums and various fees. Id. § 15-1704(d). After making those payments, the receiver applies

the remaining receipts to expenses listed in subsection (c). Id.

¶ 25   Reading section 15-1704 as a whole, we find that subsections (c) and (d) set forth the

receiver’s duties in operating, managing, and conserving the mortgaged real estate. Therefore,

since subsection (g) allows an increase in rent above the amount that the occupants had been

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No. 1-17-3106

paying only if “necessary to operate, manage, and conserve” the property, any increase allowed

must be necessary for the receiver to perform his duties as set forth in subsections (c) and (d).

¶ 26   The trial court below allowed an increase “to the rates specified in the Affidavit, to wit,

$14/square foot to $18/square foot annually, triple net.” However, as stated by Brent Burden in

his affidavit, this rate is the market value rate. His affidavit contains no statements regarding an

appropriate rate given the costs, expenses, and fees outlined in subsections (c) and (d).

¶ 27   Market value rental rate is not synonymous with the rental rate necessary to cover

operating costs and expenses incurred in managing a property. Rather, the market value rate is

“ ‘the amount a willing lessee will pay a willing lessor, in a voluntary transaction, for the right to

use and occupy the premises.’ ” Monroe Dearborn Ltd. Partnership v. Board of Education of the

City of Chicago, 271 Ill. App. 3d 457, 463 (1995) (quoting People ex rel. Korzen v. American

Airlines, Inc., 39 Ill. 2d 11, 18 (1967)). Although such a rate presumably covers the lessor’s

operating costs and expenses, it also reflects “the property’s capacity for earning income.”

Kankakee County Board of Review v. Property Tax Appeal Board, 131 Ill. 2d 1, 15 (1989).

Section 15-1704(g) provides that the court may increase the rent occupants had been paying prior

to the appointment of the receiver, but only if it finds the increased rent “is necessary to operate,

manage, and conserve the mortgaged real estate.” 735 ILCS 5/15-1704(g) (West 2016). Nothing

in the plain language of subsection (g) allows for an increase to the market value rental rate if

that rate exceeds the amount the receiver needs to perform his duties under the statute.

¶ 28   Our interpretation is further supported when we compare section 15-1704(g) to section

15-1704(b)(1). Section 15-1704(b)(1) provides that the receiver has the authority to secure

tenants and execute new leases “the duration and terms of which are reasonable and customary

for the type of use involved.” Id. § 15-1704(b)(1). Unlike section 15-1704(g), subsection (b)(1)

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does not limit the rental rate to one that is necessary to operate, manage, and conserve the

property. This distinction makes sense. The receiver, given his “full power and authority to

operate, manage, and conserve” the property, should be able to execute new leases for the market

value rental rate. It is also reasonable to limit the receiver’s authority to increase the rent of

occupants who have been paying rent pursuant to existing leases, and to limit such increases to

the amount necessary to operate, manage, and conserve the property even if the market rate is

higher. “[S]tatutes should be construed to give them a reasonable meaning and to avoid absurdity

or hardship.” Hearne v. Chicago School Reform Board of Trustees of the Board of Education for

the City of Chicago, 322 Ill. App. 3d 467, 476 (2001). 1

¶ 29   Here, the receiver specified the monthly operating costs of 6500 N. Western

Avenue—including property taxes, insurance, and utilities—as $22,264.41. Adding the interest

on unpaid property taxes, which continues to accrue at approximately $2129.09 monthly, the

monthly expenses total $24,393.50, or approximately $10.38 annually per square foot, triple net.

We note that this amount does not include the fees incurred by the receiver, for which he must be

reimbursed pursuant to subsection (d). Still, it is substantially less than the market rate of $14 to

$18 annually per square foot allowed by the trial court pursuant to Burden’s affidavit. Therefore,

we vacate the court’s order allowing an increase in rent to the market value rate, and remand for

proceedings to determine an appropriate increase as authorized by section 15-1704(g).

¶ 30   For the foregoing reasons, we affirm the trial court’s determination that section

15-1704(g) allows the receiver to seek an increase of rent from occupants who have lease

       1
          On appeal, the receiver challenges the validity of the leases Chicago Taxi and Taxi Town
executed and argues whether subsection (g) has any application as a result. However, this is an
interlocutory appeal with a limited scope of review. People v. Johnson, 208 Ill. 2d 118, 145 (2003).
Illinois Supreme Court Rule 307(a)(3) (eff. Nov. 1, 2017) limits our consideration to the “giving or
refusing to give other or further powers or property to a receiver *** already appointed.”

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agreements, but vacate the trial court’s order allowing an increase to market value rental rates.

We remand the cause for proceedings consistent with this opinion. 

¶ 31   Order vacated and cause remanded.

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