Illinois Construction Law Blog : Illinois Construction Lawyer & Attorney : Foran Glennon Palandech & Ponzi Law Firm : Chicago IL

Restrictive covenants can make or break the real estate purchase/financing underlying the project. They run the gamut of justifications from restrictions for safety and public welfare all the way to terms for convenience of access and rules governing aesthetic choices. Generally they are enforced by the courts and a recent Appellate Court case shows that there may be creative alternatives for circumventing restrictions that might otherwise keep a project from going forward.

The restrictive covenant that a developer wanted to invalidate in Vo-Land, LLC, v. The Village of Bartlett (Doc. No. 1-08-0632) was an agreement to keep land developed in 1987 from being used as something other than open-space.

Vo-Land was the subsequent owner of a 107 acre parcel of property in the Village of Bartlett. In 1987, the previous owner had entered into a covenant with the Village that allowed it to construct 1,875 residential unites on its property provided that 96 acres of the site be maintained as a golf course or other open space. Vo-Land later took ownership of the property.

In 2004, Vo-Land sought to amend the zoning for the property and wanted to close the golf course, reduce the 96 acre open space mandate to 51 acres and build 350 new residential units on the remaining golf course land. The Village board denied Vo-Land’s request and refused to release the restrictive covenant and also denied Vo-Land’s request to have the zoning of the parcel amended.   That wasn’t the end to Vo-Land’s quest.

The owner brought an action asking the court to void the restrictive covenant, or, in the alternative, to force the village to allow it to apply for amended zoning – a petition for disconnection for the property from the village pursuant to Section 7-3-6 of the Illinois Municipal Code.

“Section 7-3-6 of the Illinois Municipal Code provides that property owners may have land disconnected from a municipality by court proceeding if the property: "(1) contains 20 or more acres; (2) is located on the border of the municipality; (3) if disconnected, will not result in the isolation of any part of the municipality from the remainder of the municipality, (4) if disconnected, the growth prospects and plan and zoning ordinances, if any, of such municipality will not be reasonably disrupted, (5) if disconnected, no substantial disruption will result to existing municipal service facilities, such as, but not limited to, sewer systems, street lighting, water mains, garbage collection and fire protection, (6) if disconnected the municipality will not be unduly harmed through loss of tax revenue in the future." 65 ILCS 5/7-3-6 (West 2002). The Code further provides that "[i]f the court finds that the allegations of the petition are true and that the area of land is entitled to disconnection it shall order the specified land disconnected from the designated municipality." 65 ILCS 5/7-3-6 (West 2002).”

The trial court supported the validity of the covenant and even went so far as to hold that Vo-Land was estopped from challenging its validity. The previous owner had agreed to keep the restrictive covenants conditions in place for 35 years in exchange for being allowed to develop portions of the property. Much like any other form of contract, Vo-Land would not be allowed the benefit of the zoning variance that allowed the initial construction without the open-space restrictions that gave a benefit to the village. The appellate court agreed.

The appellate court also agreed that Vo-Land was entitled to have its property disconnected from the municipality, thus rendering the restrictive covenant moot. Of the six factors listed above, the village fought the disconnection based on the third factor arguing that a water station would become isolated if the 107 acres were no longer part of the village. The water station was actually across a road from the acreage and that road, with a highway right-of-way owned by the village, was the only place that the village actually touched the water station’s parcel as well. The courts found that disconnecting the Vo-Land land would not lessen the touching between the water station property and the village.

This solution, a creative way of circumventing the municipalities decision to deny releasing the restrictions, was available because the restrictions imposed on the developer did not also include covenants restricting an owner of the 107 acre’s ability to disconnect from the village – something that could have been included by the municipality in 1987.

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It’s New Suit Friday and this week we have some new cases that just about every reader will be interested in. From attorneys looking at sample complaints and causes of action to design professionals, owners and contractors wondering what issues they might face and what could give rise to liability, this week’s spot is interesting.

In Erickson v. 2678 Orchard LLC, the plaintiff is alleging that the defendant violated several building code regulations after the plaintiff’s property became infested with rodents shortly following the beginning of excavation of the defendant’s property. The complaint also alleges that plaintiff’s tenant vacated the rental property due to the infestation and plaintiff had to reimburse pre-paid rent and incurred a revenue loss. The plaintiff seeks a permanent injunction forcing defendant to remove materials from plaintiff’s property, an end to the trespassing, correction of damages to the property and compliance with the building codes along with counts for trespass, negligence and nuisance.

In Phillips v. Savino, the plaintiffs allege that defendant, contractor, breached its contract when it failed to complete home renovations it had been paid to perform. The complaint states that the plaintiffs purchased their home and contracted with Savino for construction work, the purchase of construction materials, and services as a general contractor. The plaintiffs allege that they paid Savino for work, materials and services approximately $250,000 and that defendant did not complete and/or deficiently completed excavation of the patio, interior and exterior calking, roof flashing, floor resanding, driveway damage and siding work they also seek damages for work performed to fix work that defendant performed, and other out-of-pocket expenses they were asked to pay by the defendant during the term of the job.

In K-Mart Corp. v. Menard, Inc., a sublessor is suing a sublessee for damages which allegedly incurred during the sublessee’s 18 year tenancy in a building in Hanover Park. The complaint seeks damages for monies K-Mart says it had to/ or will have to expend to replace a parking lot a drainage system, a building roof, exposed wiring and many other problems that it claims the sublessee had a duty to maintain and keep in good repair under the lease.

In McWalters v. Lee and GLP, Inc., a partner in a design firm is suing another partner alleging that the partner and the company have damaged him by breaching their shareholder agreement which required that his shares be purchased back at a price described in a specific formula, that the defendant partner breached fiduciary duties to both the plaintiff partner and the company and the because of the breach, the shares are worth less than what they would be worth had the breach not occurred, and that the plaintiff partner was fraudulently induced into purchasing his shares of the company based on the defendant’s false representations that the shares would be redeemed at the price derived through the specified formula. As a shareholder, the plaintiff partner also asserts causes of action against the defendant partner on behalf of the company. The allegations include claims that the defendant partner used company money for personal travel and renovation of his private residences, to pay himself an undeserved salary, to start up a publishing company, and offered a rent-free sublet to a friend.

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It’s no surprise that we expect the government to treat us fairly.  Not to simplify the founders' intents; it was unequal treatment at the hands of another government that sparked the American Revolution. You might think the facts of the instant case are a far cry from the issues leading to the Boston Tea Party, the Civil War and Women’s Suffrage, but the notion of equality… our expectation of it… is pervasive.

In 2007, LaBella Restaurant sued the Village of Winnetka.  Oddly, a picture of some form of construction at the site been preserved by Google:

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The amended complaint alleged that:

LaBella had a problem with its roof leaking. From 2006 through 2007 the restaurant informed the village that the landlord of the building failed to maintain the roof and the village never required the landlord to bring the roof into compliance with the village ordinances. The restaurant alleged that the landlord hired roofers who then worked without work or building permits from the village and that a fire accidentally happened in 2007. The restaurant was forced to close by the damage.

In the aftermath the restaurant applied for permits to repair the fire damage to the restaurant’s interior and the village refused to issue permits until the landlord replaced the roof. The restaurant claimed in its complaint that while it was closed and the village was denying it permission to make repairs until and unless the roof was fixed, the village met with competing restaurants in the same building and that the village approved permits and designs for those competing restaurants to occupy portions of the building that LaBella leased from the landlord.

LaBella claimed that the denial of its permits and the selective enforcement of other building ordinances in the city (not citing a competing restaurant for having an exhaust fan that was non-compliant and allowing another restaurant to keep its cooking operations going even though a portion of its restaurant had been partitioned off for building renovations) amounted to unequal treatment by the village.

Now, you do have a right to bring suit when you are not being treated by the government as other similarly situated people are being treated… however, the in deciding the motion brought by the defendants to get rid of the case against them, the Court found that LaBella was in a different situation from the other restaurants.

The Court ruled that the fire damage implicated structural concerns for the building. The damage and contemplated repair was not the same as partitioning off a portion of a restaurant to make renovations nor was forcing it to close the same as not forcing a restaurant with a non-compliant exhaust fan to close. The Court dismissed the claim based on the unequal treatment at the hands of the village because LaBella had not sufficiently shown that the other restaurants were similarly situated.

LaBella’s may not be out though. The Federal Court refused to hear the counts of its complaint that weren’t based on alleged constitutional violations… it could still decide to litigate those in state court.  

You shouldn’t be afraid to speak up and assert your rights when you think you’re not being treated fairly, but you need to know that sometimes a Court will decide that not all projects are the same.

 

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The Skyline is posting on the City’s appeal of the First District’s recent decision regarding the City of Chicago’s Landmarks ordinance in Hanna v. City of Chicago (Doc. No. 1-07-3548).

This case will go to the Illinois Supreme Court and Illinois towns are lining up to join in the appeal. Student’s at Northwestern’s Medill School of Journalism have put together an informative article and interview regarding this case.

Quite a lot of commotion has been tossed around regarding the opinion of the appellate court. Some people see it as declaration that the landmarks ordinance is unconstitutional, but the truth is that the appellate court seemingly went out of its way in the opinion to say that they were simply stating that the plaintiffs had put enough information in their complaint to state a claim against the city on the grounds that the ordinance is unconstitutional.

The Court agreed that the terms in the ordinance could be construed as vague and that the provision of the act which allows the landmarks commission’s recommendation to become enacted if the city council does not take final action within 365 days of the recommendation.

We will follow up on this case as it progresses, but it does not appear to be the windfall for the plaintiffs that some of the articles are making it out to be.

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Malec v. City of Belleville (5^th Dist., Doc. No. 05-07-0456) is a case worth noting.  The City of Belleville adopted a group of ordinances in 2006 that provided for the formation of a tax-increment-financing district (TIF) pursuant to the TIF Act.  The city also adopted an ordinance creating a business district, approved a redevelopment plan, tax increment allocation financing for the Developers, a tax within the created business district and authorized the use of general sales tax revenues to reimburse the Developers for project development costs.  A complaint filed by the plaintiff alleges that these ordinances were to help finance a Wal-Mart, Lowe's, housing development and some other businesses.

Plaintiff, a taxpayer, brought suit challenging the city's enactment of the taxes under the TIF Act.  The district court dismissed the plaintiff's claim, finding that he lacked standing to bring his action as a taxpayer.  The 5^th District reversed and found that if the actions of the city in creating the TIF and business district did affect the general revenue of the city, then a taxpayer would have standing.  The court also held that the taxpayer could challenge the creation of the TIF through claiming that the areas that had been created did not meet the criteria of being "blighted" as the Act required (under the act "blighted" is a term of art that requires a area meet a myriad of factors in order to qualify for the TIF districting).  See 74.4-3(a) of the Act.  The argument was that the areas would have developed as business districts on their own, and as such, the creation of the special districts to generate revenue that would be paid to the developers affected the general revenue of the city because the city would have generated the revenue for itself and would therefore have no need to pay developers to do it.  (No mention of the timing was made, i.e., whether an argument that a development district would create business in a matter of a year as opposed to a naturally occurring district developing over, say, ten years).

While the case is not a blow to the creation of the districts for development, it does lend individuals another form of suit which could be used to slow down any form of development relying on TIF funding and is a case we'll keep an eye on.

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For those who haven't been following SB 2014, the synopsis of the bill reads:

"Amends the Illinois Municipal Code. Provides that any decision by the corporate authorities of any municipality regarding any petition or application for a special use, variance, rezoning, or other amendment to a zoning ordinance (instead of any special use, variance, rezoning, or other amendment to a zoning ordinance adopted by the corporate authorities of the municipality) is subject to de novo judicial review."

• We have written about it here and commented on its status here.

The bill has now passed both houses and has yet to be sent to the Governor for signature or veto.

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       It started with a simple article about developers paying to have their properties re-zoned in a Sunday edition of the Chicago Tribune.  The expose blossomed into a myriad of comments and subsequent features and commentary all the way to a piece soliciting comment from the Mayor.  Chicago Neighborhoods were beginning to look a bit more like the image below with set-offs and accommodations made in different zones for single-zoned lots and properties:

    That media attention and discussion has now resulted in Senate Bills 2014 and 2022.   SB 2014 seeks to allow de novo review of decisions regarding zoning applications, altering the previous system of review upon the approval and adoption of a zoning decision.  SB 2022 alters the notice times for publication regarding hearings for changes, and in unincorporated parts of the state, requires that notice be sent to adjacent parcels within 1.5 miles of the proposed re-zoning.
    These changes come too fast on the heals of those articles and reports to realistically be deemed anything but fallout from scrutiny into the development practices going on in the State.  Thus, developers should be aware that they may soon have a few extra technical hurdles to overcome before getting those zoning requirements they need for their projects.

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