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Lomto Federal Credit Union v. 6500 Western LLC

Court of Appeals of Illinois, First District, First Division

April 23, 2018

LOMTO FEDERAL CREDIT UNION, Plaintiff,
v.
6500 WESTERN LLC; CHICAGO TAXI LEASING, INC.; TAXI TOWN, INC.; UNKNOWN OWNERS and NON-RECORD CLAIMANTS, Defendants (Michael J. Eber, Receiver-Appellee; 6500 Western LLC, Chicago Taxi Leasing, Inc., and Taxi Town, Inc., Defendants-Appellants).

          Appeal from the Circuit Court of Cook County. No. 17 CH 05789 Honorable Darryl B. Simko, Judge Presiding.

          JUSTICE HARRIS delivered the judgment of the court, with opinion. Presiding Justice Pierce and Justice Mikva concurred in the judgment and opinion.

          OPINION

          HARRIS JUSTICE

         ¶ 1 This appeal involves an interlocutory order, granting the receiver's motion to increase rent, determine market value rental rates of property, and employ a real estate valuation professional. On appeal, defendants, 6500 Western LLC, Chicago Taxi Leasing, Inc. (Chicago Taxi), and Taxi Town, Inc. (Taxi Town), contend the court erred in (1) permitting an increase in rent pursuant to section 15-1704(g) of the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1704(g) (West 2016)), when a lease agreement exists, and (2) permitting an increase to the market rental rates for the property. For the following reasons, we vacate the order and remand for further proceedings consistent with this opinion.

         ¶ 2 JURISDICTION

         ¶ 3 The trial court entered an interlocutory order, granting the receiver's motion on November 21, 2017. Defendants filed their notice of appeal on December 15, 2017. Accordingly, this court has jurisdiction pursuant to Illinois Supreme Court Rule 307(a)(3) (eff. Nov. 1, 2017), governing interlocutory appeals as of right.

         ¶ 4 BACKGROUND

         ¶ 5 The property at issue is located at 6500 N. Western Avenue in Chicago, Illinois. The commercial property is improved with a 28, 200-square-foot building used by defendants Chicago Taxi and Taxi Town. On April 21, 2017, plaintiff LOMTO Federal Credit Union filed its commercial foreclosure action against defendants. On May 10, 2017, plaintiff filed a motion for immediate possession and appointment of a receiver.

         ¶ 6 Adrian Tudor, the manager of 6500 Western LLC, is also president of both Chicago Taxi and Taxi Town. On or about June 1, 2017, 6500 Western LLC executed leases with Chicago Taxi and Taxi Town for "that portion of the premises *** currently occupied by the Tenant(s)." Under each lease, the tenant pays $4000 per month as rent, and the lease term expires on May 31, 2022. The lease agreements contain no provision for a security deposit or for payment of utilities, and the landlord is responsible for maintenance and repairs during the lease term. The combined rent from these leases is $8000 per month, which is approximately $3.40 per improved square foot per year.

         ¶ 7 On June 16, 2017, the trial court granted plaintiff's motion for immediate possession and to appoint a receiver. On July 24, 2017, the receiver sent a letter to 6500 Western LLC listing the estimated monthly expenses of the property per month, including $11, 822 for property taxes, $935.26 for insurance, $2000 for snow removal and landscaping, $2000 for repairs to the roof and sewer/drainage systems, and $2000 placed in a capital repair reserve escrow. This total estimated cost of $18, 758.03 per month did not include utilities the landlord may be responsible for under the lease agreements. The receiver informed 6500 Western LLC that the $8000 per month received in rent "is not sufficient to cover the expenses and it leaves no cash available to pay current debt service (principal and interest payments) nor any reasonable rate of return." According to preliminary market rate data gathered by the receiver, a more appropriate monthly rent would total $37, 600 per month.

         ¶ 8 On August 7, 2017, the receiver filed his first report, which included the detailed monthly cost estimates in the July 24, 2017, letter. The court approved the report and on September 6, 2017, the receiver filed his motion to increase rent, determine market value rental rates of property, and employ a real estate valuation professional. In the motion, the receiver set forth the monthly landlord costs of the property listed in his first report, but added $3506.38 for utility payments for a total of $22, 264.41 per month. The motion requested that the trial court "enter an order raising the rent, on an interim basis, to be paid by Taxi Town, Inc. and Chicago Taxi Leasing, Inc., to an aggregate amount that is sufficient to cover maintenance, repair and operation of the property on a monthly basis."

         ¶ 9 The receiver also requested that the court enter an order to allow for "a real estate valuation professional to determine market-based rental rates for the Property and subsequently hold a hearing to determine whether rental rates shall be adjusted to market rate or kept at operating cost levels." In support, the receiver filed an affidavit of Brent L. Burden, a licensed real estate broker. Burden measured the 6500 N. Western Avenue property against two comparable commercial properties in the area using Costar, a "widely accepted *** industry standard tool for conducting research related to commercial property rentals and sales." Property located at 6100 N. Clark Street, when used as an auto dealership, had a rental rate of $18.56 annually per square foot, triple net. The property at 6017 N. Western Avenue, which has been used as an auto dealership and taxi parking lot, had starting rental rates of $19 annually per square foot, triple net. Triple net pricing "refers to a common industry standard where *** the tenant is responsible for paying 1) property taxes; 2) building insurance; and, 3) any common area maintenance during the lease term. These costs are paid in addition to the rent." Therefore, "[g]ross rental rates are usually higher than those calculated on a triple net basis because [in those cases] the landlord pays property taxes, insurance, and maintenance costs out of the rent received from the tenant."

         ¶ 10 Burden found that in the lease agreements signed by Chicago Taxi and Taxi Town, "the tenants appear to be responsible solely for the payment of a flat rental rate and the landlord pays property taxes, insurance, and maintenance costs for the Property. This equates to approximately $3.43 annually per square foot, gross" which "falls substantially below market value." In his opinion, the rental rates of the 6500 N. Western Avenue property "fall in the range of $14 to $18 annually per square foot, triple net."

         ¶ 11 In response, defendants argued that section 15-1704(g) does not allow a receiver to seek an increase in rent when a lease agreement already exists and, alternatively, that the receiver did not meet his burden in order to increase the rent. After hearing oral argument, the trial court granted the receiver's motion and allowed him to increase the rental rates "to the rates specified in the Affidavit, to wit, $14/square foot to $18/square foot annually, triple net." The court denied the receiver's request for retroactive ...


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