Quincy Mall, Inc. v. Kerasotes Showplace Theatres, LLC (4th Dist., Doc. No. 4-08-0409) - Another Leaky Roof Case
There’s a fun idea that I’ve always attributed to Bob Balaban that I first encountered it in an interview he gave on Fresh Air back in 2002. Unlike some of his other interviews discussing his family’s history in the movie business, he was a little more descriptive about his silver screen pioneering ancestors.
In talking about his grandmother’s decision to want to get into the movie business he said that she left the theatre one day after seeing a movie for the first time and decided it was the business for the family because it was the only time she remembered anyone paying full price for something before they knew what they were going to get.
Don’t worry, this isn’t an article about putting an attorney on retainer.
It’s about a recent case from the fourth district that has enforced a standard for properly allowing commercial tenants to set off rental payments in an amount equal to what they’ve paid in repairs for something the Landlord was liable to replace under the lease.
The case involved a damaged roof at a movie theatre in Quincy, Illinois. The theatre rents space from the mall.
In 2003 the theatre had the roof inspected because it had been leaking. Shortly after the inspection, the theatre sent the mall a letter requesting that the mall replace the roof. The mall did not respond and the theatre had its attorney send another letter that said:
"As it is the [Mall's] responsibility to replace the roof, [Theatre], by this letter, is making demand upon the [Mall] for reimbursement of the replacement cost. [Theatre] is willing to advance the cost of the replacement to be set off against future rents. If [the Mall] prefer[s], [it] may reimburse [Theatre] directly. The replacement will occur as soon as weather permits. Upon completion of and payment for the replacement,[Theatre] will initiate the setoff unless you wish to reimburse [Theatre]in a lump sum or pay the contractor directly."
The mall responded saying that the lease included the following provision which the mall interpreted to mean that the theatre was responsible for replacing the roof:
"Tenant agrees during the term hereof to keep and maintain in good condition and repair, the demised premises and every part thereof, including without limitation the foundations, exterior walls, roof, exterior and interior portions of all doors, windows, plate glass, etc."
The theatre replied that since the correspondence from the mall did not mention the need to replace the roof, nor the estimated cost to fix the roof, the theatre would go ahead with the replacement and that the theatre was not waiving any of its rights to reimbursement or damages relative to the mall’s duty to repair the roof.
The mall didn’t respond to the letter and the theatre had the roof fixed and sent the mall notice that the repairs were contracted for and that they would be setting off the entire cost of the roof repair from the rent obligation. The cost to repair the roof was $79,298 and the work was finished in March.
Between June and December, the theatre set off $79,298 from the rent it owed the mall. In December, the mall sued the theatre to recover the rent. The theatre denied that it owed the mall rent and requested that the court make a determination that the theatre had satisfied its contractual obligations when it replaced the mall’s roof.
The trial court agreed with the theatre and entered a judgment stating that they had satisfied their rent obligations through payment for the roof and were entitled to set off the rent.
The appellate court agreed. It distinguished the clause for “repair” of the roof in the theatre’s contract with the mall from one in which “replacement” would be required. The court also held that the set off was proper.
In holding that set off was proper the court looked to the history of the law governing lease agreements and reasoned, in a similar fashion to the article from John Orth in the latest issue of the Green Bag, that the historic trend in real estate law that has transformed the lessor’s interest in land from a property right to a right under contract. This transformation, the court opined, has not changed the former covenants between the landlord and lessor, which allow for the lessor to set off rent in the amount equal to repairs the lessor made that the landlord should have made.
The court concluded:
“Thus, when a commercial landlord fails to replace a critical component of the leased premises, which is vital to the operation of its commercial tenant's business—in violation of the landlord's duty to do so, as previously discussed—the commercial tenant may set off such replacement cost, provided that (1) the tenant has informed the landlord of the need to replace the necessary component; (2) the landlord failed to replace the necessary component in a timely manner; and (3) the tenant informed the landlord of its intent to set off the reasonable costs of the necessary replacement.”
It’s a valuable lesson in drafting the lease agreement with particularity if there’s something that should be included in the agreement, and for a procedure to make sure set off is proper.
The opinion can be found here.
