The Business Litigation Blog

Landlord Loses Commercial Real Estate Action for Rent Accruing Before it Purchased the Property

In most cases, the buyer of property wants to know whether the tenants have paid the rent and, if they haven’t, how much they owe.  The purpose of obtaining that information is to decide what to do about it, however.  Simply buying commercial real estate does not give the purchaser any right to rent that wasn’t paid by the tenant before the purchase, according to a recent case decided by the Appellate Court of Illinois, First District:  1002 E. 87th Street LLC v. Midway Broadcasting Corp., et al.

This could have been handled in the real estate contract or a separate agreement transferring account receivables to the purchaser.  If there was a substantial arrearage, a discount to the purchase price perhaps could have been negotiated.  Here, however, there was no lease provision or separate contract transferring the right to tenant arrearages.

Had a tenant estoppel letter been obtained, the tenant would have had to explain the claim or defense or be “estopped” from claiming it later. 

Most building purchasers get an estoppel letter from the tenant or tenants for that reason.  Most commercial leases require a tenant to respond to their landlords’ requests for estoppel letters.  There was no mention of one in the opinion. 

Because the tenant had claims or defenses against the landlord for failure to comply with its maintenance obligations, the building’s seller may not have wanted to start a lawsuit to collect the back rent.  It might also be the reason why the seller decided to sell the building.

The buyer may have bought the building cheap and then, when it saw the arrearages, started a lawsuit on the theory that anything collected would be “found money.”  By not securing an assignment of the rents or purchasing the receivables, however, it ended up with a business lawsuit that “lost money,” if it paid its lawyers for filing the litigation. 

For a copy of the opinion or if you have questions about commercial real estate litigation, get in touch with Thomas E. Patterson or Patterson Law Firm at tpatterson@pattersonlawfirm.com and (312)-223-1699.

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