IL Appellate Court Rules: New Landlord May Not Be Entitled To Unpaid Rent

Seyfarth Synopsis: The Illinois Appellate Court ruled in favor of a commercial tenant after the new landlord attempted to collect accrued unpaid rent owed to the previous landlord, who had assigned the lease to the new landlord. In affirming the lower court's ruling, the court held that the new landlord did not have standing to sue for unpaid rent which accrued prior to the conveyance to the new landlord. Additionally, the court noted that, unlike debt obligations, rent accrual is a chose in action that is not assignable. The decision raises questions about the strength of assignment and non-waiver lease provisions as well as succeeding landlords' rights.

Background

The Illinois Appellate Court issued a recent opinion holding that a new landlord does not have standing to sue a tenant for accrued unpaid rent prior to the new landlord's acquisition of property (“Unpaid Rent”).1 In affirming the lower court's decision, the appellate court explained that standing to sue is a right remaining with the original landlord to whom the Unpaid Rent is owed, rather than with the succeeding landlord. The holding in this case raises concerns about the applicability of certain non-waiver lease provisions, in particular, the assignability of lease rights and obligations. Landlords, tenants, and lenders alike question whether this decision may facilitate an evasion of contractual duties upon the acquisition or disposition of real estate.

The court's decision stems from a dispute that arose between 1002 E. 87th Street LLC (“87th Street”), a commercial landlord, and Midway Broadcasting Corporation (“Midway”), the tenant, and the tenant's guarantors. 87th Street purchased the property that Midway was leasing and demanded payment for past due rent Midway owed to the previous landlord. When Midway did not comply with the request, 87th Street began eviction proceedings. 87th Street first argued that the original lease gave them standing to sue. Their second argument was that the assignment provisions transferred the right to receive the Unpaid Rent due from Midway under its lease. In response, Midway argued that 87th Street did not have standing to bring suit for the Unpaid Rent because they were not the owner of the property when the Unpaid Rent accrued. Midway also argued that the assignment provision should be held invalid because the previous landlord could not have intended to assign its rights to collect Unpaid Rent to the succeeding landlord.

Standing

In...