Past-Due Rent Owed to Prior Landlord Not Recoverable by New Owner

In 1002 E. 87^th Street LLC v. Midway Broadcasting Corp., 2018 IL App (1st) 171691, the plaintiff (“87^th Street”) filed suit to evict the defendant, Midway Broadcasting Corporation (“Midway”) for unpaid rent. 87^th Street also sought to collect on a guaranty of the lease. The trial court dismissed, finding that 87^th Street lacked standing to recover rent that accrued before it owned the property. The trial court also granted the tenant, Midway, attorneys’ fees in defending the action, as the prevailing party. The appellate court affirmed.

Under the facts of the case there was no question Midway was behind on its rent owed to the prior owner of the leased premises before the premises were conveyed to 87^th Street by deed. The premises were sold however, and the new owner (87^th Street) claimed Midway was in default by reason of past due rent owed to the prior owner.

  87^th Street claimed that as a successor standing in the shoes of the landlord to which the tenant had a duty to attorn it had standing to sue under the provisions of the lease which provided that “[n]o failure of landlord to exercise any power . . . or to insist upon strict compliance . . . and no custom or practice of the parties . . . shall constitute a waiver of Landlord’s right to demand exact compliance with the terms . . . .”

  The lease provided that Midway would pay rent “without abatement, demand, deduction or offset whatsoever . . .” and also provided that the landlord “shall include the party named as such in the first paragraph hereof, its representatives, assigns and successors in title to the Premises.” The lease further provided that when an original owner conveys the property, the “tenant agrees to attorn to such new owner.” Additionally, this provision of the lease provided that when the original landlord conveys the property, all liabilities and obligations of the original landlord “shall be binding upon the new owner.” The lease further provided that the prevailing party in enforcing the lease “shall be entitled to recover from the nonprevailing party any costs, expenses and reasonable attorneys’ fees incurred.”

The appellate court in 1002 E. 87^th Street LLC held as follows:

In general, a landlord has standing to sue for unpaid rent. 735 ILCS 5/9-209 (West 2014), American Management Consultants, LLC v. Carter, 392 Ill. App. 3d 39, 44 (2009). If a landlord conveys property by warranty deed without reserving any rights, he or she also conveys the leases for the property, as well as the right to receive unaccrued rent. Pros Corporate Management Services, Inc. v. Ashley S. Rose, Ltd., 228 Ill. App. 3d 573, 580 (1992). If a tenant fails to pay rent that becomes due, the new landlord has standing to sue for it. Id. at 580-81; American Management Consultant, LLC, 392 Ill. App. 3d at 44; Dasenbrock v. Interstate Restaurant Corp., 7 Ill. App. 3d 295, 298 (1972). But the new landlord does not have a right to recover rent due from before it owned the property. Lipsultz v. Robertson, 407 Ill. 470, 474 (1950) (conveyed lease gives right to receive unaccrued rents). The original landlord retains any right to recover past due rent. Dasenbrock, 7 Ill. App. 3d at 302.

1002 E. 87^th Street, 2018 IL App (1st) 171691, ¶ 17.

The court went on to note: “Unlike credit card debt and future rent that can be assigned, Illinois courts routinely hold that rent in arrears is not assignable.” [Internal citations omitted] 1002 E. 87^th Street LLC, Id. at ¶ 24

Additionally, the 1002 E. 87^th Street court held that because 87^th Street must be able to prove a breach of contract claim to collect on the guaranty, and 87^th Street cannot prevail on its breach of lease claim for past due rent owned to the prior owner, 87^th Street could not bring an action to collect on the lease guaranty. Id. ¶ 27

Finally, because the tenant, Midway, prevailed on its defense of the claims by the successor landlord seeking to evict Midway and to collect past due rent under the lease and under the guaranty, Midway was entitled to recover from 87^th Street, Midway’s costs, expense and reasonable attorneys’ fees incurred in defense of the successor landlord’s action.  

This outcome is not what most people (including many attorneys I know) expect. It can catch owners of newly acquired rental property off-guard, and can result in expensive unexpected consequences.

Thanks for listening,

Kymn