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Michigan Wacker Associates, LLC v. Casdan, Inc.

Court of Appeals of Illinois, First District, Third Division

February 28, 2018

MICHIGAN WACKER ASSOCIATES, LLC, Plaintiff and Counterdefendant-Appellant,
v.
CASDAN, INC., Defendant and Counterplaintiff-Appellee.

         Appeal from the Circuit Court of Cook County. No. 2016 CH 12105 The Honorable Anna H. Demacopoulos Judge Presiding.

          JUSTICE LAVIN delivered the judgment of the court, with opinion. Presiding Justice Cobbs and Justice Fitzgerald Smith concurred in the judgment and opinion.

          OPINION

          LAVIN JUSTICE

         ¶ 1 This dispute arises from a lease entered into between landlord Michigan Wacker Associates, LLC (landlord), and tenant Casdan, Inc. (tenant). Landlord maintains that tenant failed to exercise its option to extend the lease term while tenant asserts the opposite. Before the trial court, both parties sought declarations supporting their respective positions and filed cross-motions for summary judgment. The trial court entered judgment in favor of tenant, and landlord now appeals. For the following reasons, we reverse the trial court's judgment and remand for the court to enter judgment in favor of landlord.

         ¶ 2 I. Background

         ¶ 3 A. The Lease

         ¶ 4 In 2001, the parties entered into a lease for landlord's property located at 75 East Wacker Drive in Chicago.[1] Tenant was to operate a restaurant under the name Bella! Bacino's. The lease was to expire on December 31, 2011, but provided two options to extend the lease:

"Tenant shall have the option to extend the term of this Lease for two additional five (5) year periods (the first five (5) year extension option shall hereinafter be referred to as the 'First Extension Option' and the second five (5) year extension option shall hereinafter be referred to as the 'Second Extension Option'). *** The option to renew shall be exercised with respect to the entire Demised Premises only and shall be exercisable by Tenant delivering the Extension Notice to Landlord, in the case of the First Extension Option, on or prior to January 1, 2011 and in the case of the Second Extension Option, on or prior to January 1, 2016, in all cases, time being of the essence.

         " Additionally, the parties would determine the rent amount for any extension by considering the fair market rent for comparable restaurants at that time. If the parties could not agree on such amount within 10 days of tenant's exercise of an option, either party could demand arbitration.

         ¶ 5 Article 27 of the lease governed notice:

"Except as otherwise expressly provided in this Lease, any *** notices *** or other communications given or required to be given under this Lease *** shall be deemed sufficiently given or rendered only if in writing, *** sent by registered or certified mail (return receipt requested) addressed to Landlord at Landlord's address set forth in this Lease, with a copy to Masterworks Development Corporation, 56 West 45th Street, 4th Floor, New York, New York 10036, Attention: Jon D. Horowitz, Esq.; or *** to such other address as *** Landlord *** may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Article 27."

         Landlord's address was Michigan Wacker Associates, LLC, "c/o Masterworks Development Corporation at 555 Fifth Avenue, Suite 1400, New York, New York, 10017." We note that Masterworks Development Corporation (Masterworks) controlled landlord's operations.

         ¶ 6 The lease also contained two sections limiting landlord's ability to waive lease terms (collectively referred to as the no-waiver clause). In short, the lease provided that landlord could waive strict performance of a lease term only by executing a written instrument to that effect and, even then, waiver of one breach would not result in the waiver of subsequent breaches.

         ¶ 7 B. The Parties' Correspondence

         ¶ 8 On November 9, 2010, tenant, through attorney Harold Rosen, sent landlord a letter labeled, "Extension Notice for First Extension Term & Notice of Change of Additional Addresses for purpose of Notice." The letter stated, "Tenant hereby gives landlord this Extension Notice that Tenant has elected to exercise the First Extension Option granted in the Lease and does so with respect to the entire Demised Premises." Notwithstanding that the notice was sent via Federal Express rather than registered or certified mail, landlord did not dispute that tenant effectively exercised the first option to extend the lease to December 31, 2016. As of 2012, well after the first extension option was exercised, the parties were still negotiating the rent amount for that period.

         ¶ 9 On August 16, 2012, tenant, through Rosen, e-mailed Horowitz, who was landlord's representative and Masterworks' general counsel. The e-mail addressed matters tenant "would like to discuss, " "would like to resolve" or "would propose." Rosen stated that he "would like to discuss" reaching an agreement for the rent amount and "would also like to discuss with you the improvements that the tenant would like to make with assistance from the Landlord." Additionally, "[t]enant would propose" that landlord match tenant's contributions to construction. A list of "[o]ther points tenant would like to resolve" included the following:

"We are now in the first of two (2) five (5) year options. Tenant would like to exercise the second option now, so we don't have to do this again as soon. It may be better to simply convert both options to a ten (10) year extension term. The ten (10) year period will better enable amortization of Landlord's contribution to improvements. We would also like to add a five (5) year option at the end of the lease."

         Rosen concluded, "Please contact me to discuss the tenant's proposal."

         ¶ 10 Rosen identified the proposal e-mail as tenant's exercise of the second option. In his deposition, he testified that the notice "wasn't pretty" but it was "sufficient." He also testified that the parties had previously deviated from the lease's notice provisions. According to Rosen, it did not make sense to tender the same type of notice as he had with the first option because landlord did not insist on formal notice and the parties were discussing other things. Rosen was looking for a comprehensive solution to all outstanding issues and clarified that tenant had wanted to exercise the second option immediately so that the parties would not have to negotiate rent again, which would benefit both parties. Rosen further testified it was beneficial to tenant to exercise the second extension option in 2012 and determine the rent for that period, in order to amortize tenant's contribution to improvements over a longer period.

         ¶ 11 Tenant's CEO, Linda Bacin, testified in her deposition that she exercised the second extension option in 2012 as part of a larger plan. Tenant planned on investing in improvements to the property, which would have warranted more than one five-year option. Bacin testified that she asked Rosen to exercise the second option in 2012 and never doubted tenant's right to continue operating at that location until December 31, 2021.

         ¶ 12 In contrast, Horowitz testified that while tenant could exercise the option at any time before January 1, 2016, it was not clear from the proposal e-mail that tenant was purporting to do so because the e-mail repeatedly identified items that tenant or Rosen "would like." Horowitz also observed that Rosen referred to the letter as a proposal and required changes to the current lease. Similarly, Masterworks employee Adam Bahna testified in his deposition that he viewed the proposal e-mail only as an informal proposal. Adam testified, "This is a letter asking for a ...


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