I’m happy to announce that the website for my new book, Illinois Commercial Real Estate is now live. Visit www.Illinois-CRE.com for a book excerpt.
Illinois Commercial Real Estate, Due Diligence to Closing, with Checklists, is intended as a practical handbook for investors, developers, brokers, lenders, attorneys and others interested in commercial real estate projects in Illinois. This book zeros-in on commercial real estate due diligence, and walks the reader through the due diligence process, from conception to closing, with a focus on making sure the commercial real estate project functions as intended after closing. Checklists are provided as an aid to commercial real estate professionals to assist on evaluation of the property and the transaction on the path toward successful closing. As people in the real estate industry understand, if the deal doesn’t close, it doesn’t count.
I’d like to extend Special Thanks to:
My clients, whose passion for creative commercial development I share;
Catherine A. Cooke and Emily C. Kaminski, attorneys at Robbins, Salomon & Patt, Ltd. who provided legal research, advice, counseling, and technical editing;
James M. Mainzer, tax partner at Robbins, Salomon & Patt, Ltd., for his insights and assistance on tax matters;
Dale V. Weaver, Illinois licensed surveyor, who was kind enough to convert my rough draft drawings into the diagrams included at chapter 25;
. . . and, of course, my friend and valuable resource, Linda Day Harrison, founder of theBrokerList, for her ongoing encouragement and support.
If you are buying, developing, financing, selling, leasing or otherwise dealing with commercial real estate in Illinois, I hope you will find Illinois Commercial Real Estate, Due Diligence to Closing, with Checkliststo be a useful resource.
Prime commercial land is limited. Prices per square foot can be astronomical. Demand for efficiency to maximize return on investment is growing. No wonder developers and property owners are looking to the sky, with varying degrees of success, to capture all the value they can from each urban parcel. Air rights development may be the solution you are looking for.
Owners and developers, and people in general, are conditioned to think of potential development sites as flat surfaces with essentially two dimensions: north/south and east/west. They see only the surface of the land, and envision the building they will construct for the particular purpose they have in mind; a bank, a drugstore, a restaurant, a strip mall, a parking garage, an office building. If the parcel is larger than they need, they may envision subdividing the parcel to make two or more lots. In most cases, however, they think primarily in terms of land coverage for the type of building they need. They visualize only the two dimensional space depicted on their Site Plan or Plat of Survey.
In 30 out of 50 states, including Illinois and all other Mid-Western states, the “Rectangular Survey System” is in effect. The Rectangular Survey System was adopted in 1785 to meet the needs of the Federal Government as it faced the challenge of dividing vast areas of undeveloped land lying west of the original 13 colonies. The system, developed under the direction of Thomas Jefferson, essentially divides the United States into rectangles, measured in relation to lines known as Meridians and Base Lines.
Development lots are instinctively viewed as the two-dimensional surface of land visually representing a potential development parcel. Descriptions of a parcel typically refer to “a parcel of land X feet by Y feet” located in relation to an intersection or other identifiable landmark.
Once a parcel is “developed”, or designated for development, by construction of improvements on the land, it is natural to think of the parcel as being unavailable for further development (unless the existing improvements are to be demolished).
Classic examples of this are single story commercial buildings at prime commercial locations, a multi-deck parking garage or mid-rise building in a downtown development area, railroad tracks or spurs cutting across valuable urban land and, in some cases, roadways and alleys.
Each of these situations represent, potentially, under-utilization of valuable real estate. Finding a way to develop the “air” above these existing or planned improvements maximizes the economic utility of these parcels and can be like creating “money from thin air.”
The practice of finding ways to utilize the “space above” is often referred to as “air rights development”. Air rights development requires thinking in three dimensions, and requires serious design consideration and legal planning but, when land values are at a premium and zoning permits, the economic return may be dramatic.
Though often overlooked, virtually all of Chicago’s downtown business district is a “city in the air“. People tend to think of streets and street level entrances to buildings in the downtown Chicago “loop” as being at “ground level”. This is simply not the case. Most of what is thought of in the Chicago Loop as being at “ground level” is located 12 to 22 feet above the earth’s surface. This explains the vast network of “lower” streets and passageways in downtown Chicago, such as “Lower Wacker Drive”, “Lower Dearborn Street”, “Lower State Street”, etc. which most people seldom traverse. It also explains why, in 1992, the Chicago Loop business district was virtually shut down by “the Great Loop Flood of ’92”, but few people got wet or even saw any water as office and retail buildings were closed and workers were sent home because of “flooding”.
The point of these observations is to reveal that “development of air rights” is not new. It is also not “. . . some exotic legal manipulation of doubtful efficacy dreamed up by big city lawyers for use only in big cities”. Development of so-called “air rights” is little more than efficient use of a limited resource when use becomes economically feasible and beneficial.
WHAT ARE “AIR RIGHTS”?
“Air rights” are part of the “bundle of rights” constituting fee simple title to real estate. The term “air rights” generally refers to the right of the owner of fee simple title of a parcel of land to use the space above the land. If this right did not exist, it would not be possible to
Due diligence is essential when investing in, developing or financing commercial real estate. You must know the right questions to ask, and where to find the answers. The object is not simply to get to closing, but to assure that the project will function as intended after closing.
R. Kymn Harp Robbins, Salomon & Patt, Ltd.
Due diligence is a standard of conduct. It is the amount of diligent inquiry due under the circumstances of your particular transaction. It requires that you determine, confirm and answer “yes” to every question required to be answered in the affirmative, and that you determine, confirm and answer “no” to every question required to be answered in the negative, for your project to proceed to closing and function as intended after closing.
In commercial real estate transactions, there are two layers of due diligence:
Transaction due diligence; and
Property due diligence.
TRANSACTION DUE DILIGENCE
In any commercial transaction, transaction due diligence requires that we ask and know the answers to fundamental questions in seven particular areas of concern. These areas of concern include the six elements of every story-line, plus authority of the parties to act. Transaction due diligence requires that you determine, confirm and know the answers to each of the following:
Who are the parties to the transaction?
a. Seller
b. Buyer
c. Lender
d. Tenants
e. Other
2. What property is included?
a. Real estate
b. Personal property
c. Franchise agreements or rights
d. Other
3. Where is the property located?
4. Why is the property being acquired? – Intended use?
5. When must it Close? And other critical dates?
a. Due diligence period
b. Title delivery deadline
c. Survey delivery deadline
d. Financing deadlines
e. Section 1031 identification period and replacement property acquisition deadlines
f. Other critical dates
6. How will the transaction be structured?
a. Sale
b. Lease
c. Section 1031 exchange
d. Seller financing
e. Other transaction structure issues
7. By what authority are the parties acting?
a. Board approval, if necessary
b. Shareholder approval, if necessary
c. Governmental approvals, if necessary
d. Manager authority under LLC Operating Agreement
e. LLC member consent, if necessary
f. Landlord consent, if necessary
g. Lender consent, if necessary
h. Any other required consents or approvals or other sources of authority
When the “what” of Transaction Due Diligence is commercial or industrial real estate, the next step is to conduct an investigation of the property using all appropriate due diligence. Property due diligence is describes below.
PROPERTY DUE DILIGENCE
Property due diligence has four additional areas of concern. As discussed below, the four major areas of concern for property due diligence are market demand, access, use and finances. All of the questions concerning the property that need to be asked and answered when investing in, developing or financing commercial or industrial real estate fall within one or more of these four major areas of concern.
Property due diligence requires that you determine, confirm and know the answers to each of the following:
1. Market Demand
a. How will the property be used?
b. Who are the intended users?
c. Is there a need – and more importantly, will there be a need at the time the project is completed?
2. Access
a. How will users get to the property?
b. Are there adequate traffic controls, stoplights, stop signs, etc.?
c. Adequate drives for customers and deliveries?
d. Sufficient roadway stacking room at nearby intersections?
e. Lawful curb-cuts?
f. Full access vs. right-turn only?
g. Adequate parking for business needs (which may be more than zoning requirements)?
h. ADA compliant/handicap accessible?
i. Any other access requirements or impediments?
3. Use
a. Any private land use controls/restrictions on use?
b. Proper zoning?
c. Sufficient parking as required by zoning?
d. Sufficient occupancy capacity?
e. Adequate utility service?
f. If buyer is acquiring the property for its own use, are there any existing tenants or users that must be terminated or removed? Can they be lawfully removed?
g. Environmental issues? (which may be as much a finance issue as a use issue)
h. Other use requirements or issues?
4. Finances
a. Financing
i. Appraised value?
ii. Loan to value – equity requirement?
iii. Terms of financing?
iv. Lender required due diligence expenses?
v. Lease subordination required?
x. Subordination Non-Disturbance and Attornment (SNDA) Agreements?
y. Tenant Estoppel Certificates?
vi. Other lender requirements?
b. Financial Metrics
i. Real estate taxes and special assessments?
ii. Rehab/repair costs?
iii. User fees and recapture costs?
iv. Environmental remediation costs?
v. Leases?
1. Lease income?
2. Security deposits?
3. Rental abatement?
4. CAM and operating expense reconciliations?
5. Landlord obligations to Tenants for build-out, etc.?
vi. Other financial benefits and burdens affecting the property?
Should you need assistance, we have a number of attorneys at Robbins Salomon & Patt, Ltd. who are experienced commercial real estate practitioners and can help. Do not hesitate to reach out to us. We are always looking for new clients with interesting or challenging projects.
NEW ALTA LAND TITLE SURVEY STANDARDS effective February 23, 2016.
UPDATE: Effective February 23, 2016, new minimum standard detail requirements for ALTA Land Title Surveys went into effect, replacing the previously existing 2011 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys.
Note that the National Society of Professional Surveyors (NSPS) is the legal successor organization to the American Congress of Surveying and Mapping (ACSM). Accordingly, the new survey standards will be cited as the “2016 Minimum Standard Detail requirements for ALTA/NSPS Land Title Surveys.“
Several substantive changes have been made in the updated 2016 land title survey standards. A comparison of the 2016 standards to the previous 2011 standards is highlighted on the Red-lined version showing the changes made. Among the notable changes are changes to the Table A list of Optional Survey Responsibilities and Specifications. The modifications to Table A are largely a result of the 2016 Land Title Survey standards making certain requirements mandatory instead of optional. Additional changes involve reassigned responsibilities (or at least a clarification of responsibilities) for obtaining certain information for use by surveyors in preparing a 2016 ALTA/NSPS Land Title Survey.
Update Purchase Agreements to Require Surveys compliant with NEW 2016 ALTA Land Title Survey Standards
Especially for commercial or industrial real estate purchase agreements (and financing commitments) requiring ALTA Surveys prepared after February 23, 2016, be sure to contractually require that they be prepared in accordance the the 2016 Minimum Standard Detail requirements for ALTA/NSPS Land Title Surveys. Be sure, also, to modify your existing contracts as they pertain to the Table A Optional Survey Responsibilities and Specifications to address the new Table A instead of the version associated with the former 2011 standards.
Purchasers should check with their lenders, and with the title insurance company engaged to insure title, to be certain everyone is on the same page, and that all parties understand their respective responsibilities for obtaining documents and information necessary for use by the Surveyor. Lenders and their counsel should do likewise.
2016 should be an interesting year for commercial real estate. Best of luck for a prosperous year!
When something breaks in a commercial space, who is obligated to make the repair?
R. Kymn Harp Robbins, Salomon & Patt, Ltd.
Catherine Cooke Robbins, Salomon & Patt, Ltd.
Absent a covenant in a lease obligating the landlord to make repairs, a landlord generally has no obligation to repair the leased premises, unless the landlord has actual knowledge of a defect at the time of entering into the lease and fraudulently conceals it. Baxter v. Illinois Police Federation, 63 Ill.App.3d 819, 380 N.E.2d 832, 835, 20 Ill.Dec. 623 (1st Dist. 1978); Elizondo v. Perez, 42 Ill.App.3d 313, 356 N.E.2d 112, 113, 1 Ill.Dec. 112 (1st Dist. 1976).
It is clear, however, that when a lease provides express covenants assigning responsibilities between landlord and tenant for repair and maintenance of leased property, those covenants will supersede any implied or common-law covenants and shall determine the responsibilities and liability of the respective parties. McGann v. Murray, 75 Ill.App.3d 697, 393 N.E.2d 1339, 1342, 31 Ill.Dec. 32 (3d Dist. 1979); Hardy v. Montgomery Ward & Co., 131 Ill.App.2d 1038, 267 N.E.2d 748, 751 (5th Dist. 1971). An express covenant to repair will not be enlarged by construction. Kaufman v. Shoe Corporation of America, 24 Ill.App.2d 431, 164 N.E.2d 617, 620 (3d Dist. 1960). The ordinary meaning of the word “repair” is to fix, mend, or put together that which is torn or broken. It involves the idea of something preexisting that has been affected by decay. Sandelman v. Buckeye Realty, Inc., 216 Ill.App.3d 226, 576 N.E.2d 1038, 1040, 160 Ill.Dec. 84 (1st Dist. 1991).
A general covenant of a tenant to keep the premises in repair merely binds the tenant to make only ordinary repairs reasonably required to keep the premises in good condition. Quincy Mall, Inc. v. Kerasotes Showplace Theatres, LLC, 388 Ill.App.3d 820, 903 N.E.2d 887, 230, 328 Ill.Dec. 227 (4th Dist. 2009); Sandelman, supra, 576 N.E.2d at 1040. It does not make the tenant responsible for making structural repairs. Kaufman, supra, 164 N.E.2d at 620; Expert Corp. v LaSalle National Bank, 145 Ill.App.3d 665, 496 N.E.2d 3, 5, 99 Ill.Dec. 657 (1st Dist. 1986); Mandelke v. International House of Pancakes, Inc., 131 Ill.App.3d 1076, 477 N.E.2d 9, 12, 87 Ill.Dec. 408 (1st Dist. 1985).
Alterations or additions of a structural or substantial nature that are made necessary by extraordinary or unforeseen future events not within the contemplation of the parties at the time of lease execution are ordinarily the responsibility of the landlord. Expert Corp., supra, 496 N.E.2d at 5. Likewise, renewals or replacements that would last a lifetime rather than maintain the condition of the premises are extraordinary repairs outside the scope of a tenant’s obligations under a general covenant of repair. Sandelman, supra, 576 N.E.2d at 1040; Schultz Bros. v. Osram Sylvania Products, Inc., No. 10 C 2995, 2011 WL 4585237 at *3 (N.D.Ill. Sept. 30, 2011). When a deficiency is so substantial and unforeseen that it would be unreasonable to expect the tenant to make repairs that basically benefit not the tenant but the landlord, those repairs may be deemed structural. Baxter, supra, 380 N.E.2d at 835.
In order to shift to the tenant the responsibility to make structural or extraordinary repairs to the leased premises, a lease must
Anyone who thinks closing a commercial real estate transaction is a clean, easy, stress-free undertaking has never closed a commercial real estate transaction. Expect the unexpected, and be prepared to deal with it.
I’ve been closing commercial real estate transactions for over 35 years. I grew up in the commercial real estate business.
My father was a “land guy”. He assembled land, put in infrastructure and sold it for a profit. His mantra: “Buy by the acre, sell by the square foot.” From an early age, he drilled into my head the need to “be a deal maker; not a deal breaker.” This was always coupled with the admonition: “If the deal doesn’t close, no one is happy.” His theory was that attorneys sometimes “kill tough deals” simply because they don’t want to be blamed if something goes wrong.
A key point to understand is that commercial real estate Closings do not “just happen”; they are made to happen. There is a time-proven method for successfully Closing commercial real estate transactions. That method requires adherence to the four KEYS TO CLOSING outlined below:
RESALE DISCLOSURE CHALLENGES – When the Commercial Condominium Association is “Inactive”
Section 18.3 of the Illinois Condominium Property Act provides that a unit owners’ association will be responsible for the overall administration of the property through its duly elected board of managers. 765 ILCS 605/18.3.
Section 19 of the Illinois Condominium Property Act sets forth a specific set of records that the board of managers of every association is required to maintain. 765 ILCS 605/19.
Section 22.1 of the Illinois Condominium Property Act provides that “in the event of any resale of a condominium unit by a unit owner other than the developer such owner shall obtain from the board of managers and shall make available for inspection to the prospective purchaser, upon demand . . .” a fairly comprehensive list of condominium instruments, and other documents and information, concerning the makeup and financial condition of the owners association, insurance coverage, litigation, reserves, assessments, and the like. 765 ILCS 605/22.1.
Remarkably, perhaps as an aftermath of the Great Recession during which resales of commercial condominiums were infrequent, it is not rare to find that the owners association for a commercial condominium has become inactive or only slightly active. Record keeping and budgeting may have become ‘streamlined”, addressing little more than collecting minimal assessments to pay insurance premiums on common elements. The owner’s association may have no formal budget, no capital reserves, extreme deferred maintenance, scant, if any, record of meetings of the board of managers, and no centralized or organized record keeping system beyond a box in a filing cabinet in the back-office of one of the unit owners.
Because of the infrequency of unit transfers in recent years, and the possible inexperience of a record-keeper who may have gotten the record-keeping job by default – when the last remaining board member left following foreclosure of his or her unit during the Great Recession – obtaining and providing the resale disclosure documents and information required by §22.1 can be a challenge.
This challenge presents practical problems for the unit seller, unit buyer and the unit buyer’s proposed mortgagee when attempting to resell a commercial condominium unit. Not the least of these problems is delay and frustration in moving toward closing – which may ultimately sour a prospective buyer and its lender, and lead the buyer to back away from acquiring the unit at all.
Deferred maintenance of common elements affecting any unit in the condominium association could have an adverse financial impact on all unit owners. For example, if a commercial or industrial condominium association is comprised of multiple commercial/industrial buildings, a required roof replacement, foundation repair, or other structural repair for any of the buildings, or a recognized environmental condition in the common areas, could be expensive, with the cost shared among all unit owners. Accordingly, when investigating the condition of a commercial/industrial condominium unit being considered for acquisition, due diligence may require having all common elements in the association inspected, rather than merely looking at the unit being considered for acquisition. This may be more expensive and may take more time than might ordinarily be expected when purchasing a stand-alone building that is not a condominium unit.
PRACTICE TIP
Consider when drafting a purchase agreement under these circumstances, who should bear the cost of inspecting all common elements in the association? Ordinarily the cost of “due diligence” is a buyer’s expense. But if extraordinary inspections of association common elements beyond the specific unit being acquired is required in the exercise of due diligence because the selling unit owner did not demand that the owners’ association be operated by a board of managers in compliance with the Illinois Condominium Property Act, should the buyer bear this extraordinary expense, or should the seller?
There is no easy solution for this challenge, especially for a buyer planning to purchase a unit in one of these inactive associations. The best advice may be to become proactive – whether as an existing unit owner or upon becoming a new unit owner, to reactivate and invigorate the owners’ association and its board of managers, and to take steps to run the owners association in a businesslike manner, in compliance with the Illinois Condominium Property Act.
Generally speaking, owners of commercial condominiums are business people. They should demand that the association be run like they would run any business or investment property they invest in, if they expect to be successful.
If you have a viable solution to this challenge, please comment with your insights and practical suggestions.
Thank you in advance for participating in this discussion.
A misconception abounds in commercial real estate. I am partly to blame. I didn’t mean to add to this false belief, but I recognize that I have.
While writing articles and presenting seminars on due diligence for commercial real estate transactions, my colleagues and I who focus on due diligence as a topic of continuing education tend to overstate the case as it applies to any single transaction. We tend to make our hypothetical project or transaction so complex and so filled with due diligence potholes that we can sometimes obscure what really happens in most commercial real estate transactions. Our audience – whether they be readers or live seminar attendees – can understandably find their eyes glazing over and may conclude that the scenario being addressed has no connection to their life or their deals. They have never seen a project or transaction so convoluted or complex, and don’t expect that they ever will.
In truth – no one does. In practice, commercial real estate due diligence is not that hard. It is not that complex. It need not be that expensive.
I have been asked to discuss “small deal due diligence”. I generally try to avoid using the term “small deal” when describing commercial real estate projects or transactions, because to our clients no deal is small when it involves their money or business. To some,
Are you planning to purchase, finance, develop or redevelop any of the following types of commercial real estate in the USA?
Shopping Center
Office building
Large Multifamily/Apartments/Condominium Project
Sports and/or Entertainment Venue
Mixed-Use Commercial-Residential-Office
Parking Lot/Parking Garage
Retail Store
Lifestyle or Enclosed Mall
Restaurant/Banquet Facility
Intermodal logistics/distribution facility
Medical Building
Gas Station
Manufacturing facility
Pharmacy
Special Use facility
Air Rights parcel
Subterranean parcel
Infrastructure improvements
Other commercial (non-single family, non-farm) property
A KEY element of successfully investing in commercial real estate is performing an adequate Due Diligence Investigation prior to becoming legally bound to acquire or finance the property. Conducting a Due Diligence Investigation is important not just to enable you to walk away from the transaction, if necessary, but even more importantly to enable you to discover obstacles and opportunities presented by the property that can be addressed prior to closing, to enable the transaction to proceed in a manner most beneficial to your overall objective. An adequate Due Diligence Investigation will assure awareness of all material facts relevant to the intended use or disposition of the property after closing. This is a critical point. The ultimate objective is not just to get to Closing – but rather to confirm that the property can be used or developed as intended after Closing.
The following checklists – while not all-inclusive – will help you conduct a focused and meaningful Due Diligence Investigation.
This is Part 2 of a multi-part series of articles discussing the duties, rights and remedies of commercial real estate tenants in Illinois. Part 1, entitled “Getting It Right” discussed the importance of clarity in lease drafting, and the potential for unintended leasehold easements for parking, and other uses.
In March 2015, the Illinois Institute for Continuing Legal Education (“IICLE”) published its 2015 Edition practice handbook entitled: Commercial Landlord-Tenant Practice. To provide best-practice guidance to all Illinois attorneys, IICLE recruits experienced attorneys with relevant knowledge to write each handbook chapter. For the 2015 Edition, IICLE asked R. Kymn Harp and Catherine A. Cooke to write the chapter entitled Tenant’s Duties, Rights and Remedies. We were, of course, pleased to oblige. Although each of us represent commercial landlords at least as often as we represent commercial tenants, a clear understanding of the duties, rights and remedies of commercial real estate tenants is critical when representing either side of the commercial lease transaction.
The following is an excerpt (slightly edited) from our chapter in the 2015 Edition. We hope you find this excerpt, and the excerpts that will follow, informative and useful. Feel free to contact IICLE directly to purchase the entire volume.
The COVENANT OF QUIET ENJOYMENT What Is It? — General Principles
It has long been the law in Illinois that a covenant of quite enjoyment is implied in all lease agreements. Blue Cross Ass’n v. 666 N. Lake Shore Drive Associates, 100 Ill.App.3d 647, 427 N.E.2d 270, 273, 56 Ill.Dec. 290 (1st Dist. 1981); 64 East Walton, Inc. v. Chicago Title & Trust Co., 69 Ill.App.3d 635, 387 N.E.2d 751, 755, 25 Ill.Dec. 875 (1st Dist. 1979); Berrington v. Casey, 78 Ill. 317, 319 (1875); Wade v. Halligan, 16 Ill. 507, 511 (1855).
A covenant of quiet enjoyment “promises that the tenant shall enjoy the possession of the premises in peace and without disturbance.” [Emphasis in original.] Checkers, Simon & Rosner v. Lurie Co., No. 87 C 5405, 1987 WL 18930 at *3 (N.D.Ill. Oct. 20, 1987). This does not mean, however, that no breach of the covenant of quiet enjoyment may be found in a leasehold without a finding that the lessor intended to deprive the lessee of possession. Blue Cross Ass’n, supra, 427 N.E.2d at 27. It simply means that a tenant must actually be in possession of the premises to claim a breach of the covenant of quiet enjoyment. If the tenant has already vacated the premises before the disturbance has commenced, no breach of the covenant of quiet enjoyment occurs. Checkers, Simon & Rosner, supra, 1987 WL 18930 at *3.
An implied covenant of quiet enjoyment includes, “absent a lease clause to the contrary, the right to be free of the lessors’ intentional interference with full enjoyment and use of the leased premises.” Infinity Broadcasting Corporation of Illinois v. Prudential Insurance Company of America, No. 86 C 4207, 1987 WL 6624 at *5 (N.D.Ill. Feb. 9, 1987), aff’d, 869 F.2d 1073 (7th Cir. 1989), quoting American Dairy Queen Corp. v. Brown-Port Co., 621 F.2d 255, 258 (7th Cir. 1980).
If the landlord breaches the covenant of quiet enjoyment, the lessee may remain in possession and claim damages for breach of lease. In such case, the measure of damages is the difference between the rental value of the premises in light of the breached covenant of quiet enjoyment and the rent that the tenant agreed to pay under the lease, together with such special damages as may have been directly and necessarily incurred by the tenant in consequence of the landlord’s wrongful act. 64 East Walton, supra, 387 N.E.2d at 755.
Although Illinois cases defining the precise scope of a covenant of quiet enjoyment are rare, BLACK’S LAW DICTIONARY, pp. 1248 – 1249 (6th ed. 1993) defines “quiet enjoyment” in connection with the landlord-tenant relationship as “the tenant’s right to freedom from serious interferences with his or her tenancy. Manzaro v. McCann, 401 Mass. 880, 519 N.E.2d 1337, 1341. (Ringing for more than one day of smoke alarms in an apartment building could be sufficient interference with the tenants’ quite enjoyment of leased premises to justify relief against the landlord.).”
HOW THE COVENANT OF QUIET ENJOYMENT MAY APPLY— CASE LAW
In Blue Cross Ass’n v. 666 N. Lake Shore Drive Associates, 100 Ill.App.3d 647, 427 N.E.2d 270, 273, 56 Ill.Dec. 290 (1st Dist. 1981), the First District Appellate Court discussed the covenant of quiet enjoyment in the lease as granting the tenant a right of quiet and peaceful possession and enjoyment of the whole premises and equated a breach of quiet enjoyment under a lease to a private nuisance. “A private nuisance in a leasehold situation is ‘an individual wrong arising from an unreasonable, unwarranted or unlawful use of one’s property producing such material annoyance, inconvenience, discomfort, or hurt that the law will presume a consequent damage.’ ” Id., quoting Great Atlantic & Pacific Tea Co. v. LaSalle National Bank, 77 Ill.App.3d 478, 395 N.E.2d 1193, 1198, 32 Ill.Dec. 812 (1st Dist. 1979).
The tenant had entered into a five-year lease on August 22, 1978, with a five-year renewal option, for approximately 53,000 square feet of the
Illinois Commercial Real Estate, Due Diligence to Closing, with Checklists, is intended as a practical handbook for investors, developers, brokers, lenders, attorneys and others interested in commercial real estate projects in Illinois. This book zeros-in on commercial real estate due diligence, and walks the reader through the due diligence process, from conception to closing, with a focus on making sure the commercial real estate project functions as intended after closing. Checklists are provided as an aid to commercial real estate professionals to assist on evaluation of the property and the transaction on the path toward successful closing. As people in the real estate industry understand, if the deal doesn’t close, it doesn’t count.
