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Dana Pt. Condo. Assoc. v. Keystone Serv.

OPINION FILED MARCH 13, 1986.

DANA POINT CONDOMINIUM ASSOCIATION, INC., PLAINTIFF-APPELLEE,

v.

KEYSTONE SERVICE COMPANY, A DIVISION OF COLE COIN OPERATED LAUNDRY EQUIPMENT, INC., DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Cook County; the Hon. Arthur L. Dunne, Judge, presiding.

PRESIDING JUSTICE LINN DELIVERED THE OPINION OF THE COURT:

Plaintiff Dana Point Condominium Association, Inc. (the Association) instituted a declaratory judgment action seeking a judgment order by the trial court that a lease it has with defendant Keystone Service Company (Keystone) is unconscionable and therefore invalid and unenforceable. *fn1

Following a hearing, the trial court ruled, inter alia, that the lease's terms were not unconscionable, and that Keystone should have the benefit of its bargain but exclusive of Keystone's right to an option which would allow Keystone to extend the lease term.

Both parties appeal.

The Association asserts that the trial court's ruling that the lease was the result of an arm's-length bargain and was not unconscionable is contrary to the manifest weight of the evidence. Keystone claims that the trial court correctly determined that the basic lease is legally proper and enforceable but that the trial court erred in concluding that the option right under the lease was unconscionable and unenforceable.

We affirm the trial court's ruling as to the validity of the basic lease but reverse its ruling as to the option right. We rule that the option right is legally binding and enforceable.

BACKGROUND

Dana Point is a complex of five separate residential buildings containing a total of 504 units. Prior to 1978, Ben Pekin owned and operated the Dana Point complex as rental property. In March of 1978, Pekin sold Dana Point to Haven Equities Corporation (Haven) who, in turn, converted it to a condominium complex. Before Pekin sold the property to Haven, however, on October 1, 1977, he and Keystone executed the lease in dispute here.

Under the terms of the lease, Keystone rents a laundry room in each of Dana Point's five buildings. Keystone installs, services, and maintains coin operated laundering machines. Keystone is obligated to pay the association $1.25 per condominium unit per month (which when multiplied by 504 units equals $630 per month or $7,560 per year) as rent. The length of the lease is 10 years, and Keystone has an option to renew the lease for an additional 10 years. All utility expenses resulting from the laundering operation are the obligation of the Association, and it is the Association who is responsible for the cleaning and upkeep of the laundry rooms, except for the coin operated laundering machinery. Keystone alone determines the charge for the use of the laundering equipment. *fn2

By November 1980, Haven had sold 66% of the Dana Point units as condominiums. At that time, the association took over management of Dana Point's five buildings. Several months later, the Association learned of the lease arrangement with Keystone. The Association immediately demanded of Keystone that it remove its laundry equipment from Dana Point. Keystone, however, refused to do so, citing the lease that it had executed with the Association's predecessor, Ben Pekin. Two years later, on February 25, 1983, the Association filed this declaratory judgment action.

The evidence presented at trial was contradictory in several respects. With respect to the unconscionability issue, for example, both parties tendered experts in the coin operated laundry business.

The Association called Robert Ilg as an expert witness. Ilg has been involved with the coin operated laundry industry for over 20 years. Ilg testified as to his view of the general practice in the coin operated laundry business during the 1977-78 period (the period during which Pekin and Keystone executed the lease). According to Ilg, when a landlord and a laundry service entered into a lease, the amount of rent paid to the landlord was always a percentage, varying from 30% to 60%, of the gross cash receipts taken in by the laundering machines. Ilg stated that flat rate rental agreements, such as that agreed to by Pekin and Keystone, were rarely entered into, for they were unprofitable for the landlord. Ilg also testified that in his experience, lease agreements between landlords and coin-operated laundry services ran for terms of not more than seven years. On cross-examination, however, Ilg admitted that in all cases, the landlord and the laundry service negotiated the final terms upon which they agreed.

Keystone, on the other hand, called Edwin Weiman as its expert witness. Weiman has been involved in the laundry business for the past 30 years. Weiman testified that in his view, there were two types of rental agreements that laundry services and landlords entered into; one involved a flat rental rate calculated on a per-apartment unit basis, and the other was based on a percentage of the gross cash receipts taken in by the laundry machines. It was Weiman's position that the negotiation process ultimately determined upon which rental rate the parties agreed. Weiman also stated that in 1977, the average rate for a lease based on a flat rate until rental basis was $1 per unit and that 10-year leases were not uncommon in the laundry service field.

Louis Cole, president of Keystone, provided the only evidence regarding the bargaining process that he and Pekin had engaged in prior to executing the Dana Point laundry room lease. Cole stated that the terms of the lease were mutually agreed upon and resulted from a give-and-take negotiation process between him and Pekin. ...


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