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Illinois App. Court (1st Dist) Holds No Waiver of KCRO Rights When Tenant Accepted Untimely Lease Extension Offer

KCROThe Court of Appeals of Illinois, First District, recently held that the successful bidder at a foreclosure sale must “strictly comply” with the Keep Chicago Renting Ordinance and that the tenant’s acceptance of a mortgagee’s untimely lease extension offer did not waive her rights under the KCRO.

A copy of the opinion in Norman v. U.S. Bank National Ass’n is available at:  Link to Opinion.

In 2014, a condominium association obtained a court order assigning a unit owner’s right to the renter’s rent payments directly to the association. Thereafter, the association entered a month-to-month written lease with the renter.

In 2015, the condominium was foreclosed and the mortgagee became the owner pursuant to a judicial sale which was approved on Oct. 23, 2015. The mortgagee communicated with the renter after the sale but did not offer to continue the renter’s tenancy or provide the $10,600 relocation assistance required by Chicago Municipal Code, § 5-14-010, also known as the Keep Chicago Renting Ordinance.

As you may recall, the KCRO provides specific timelines for communications and information disclosures between owners and tenants. Specifically, the ordinance specifies that the tenant of a foreclosed property “shall” be given notice of the change of ownership within 21 days of the change or within seven days of determining the tenant’s identity. Chicago Municipal Code § 5-14-040(a). Until that notice is given, the owner cannot collect rent or terminate a tenant’s lease for failure to pay rent. Chicago Municipal Code § 5-14-040(d) (amended Apr. 15, 2015).

The new owner is also required to pay a “qualified tenant” a one-time relocation assistance fee of $10,600, unless the new owner offers to renew or extend the rental agreement at a rate that is no more than 102% of the current annual rental rate. Chicago Municipal Code § 5-14-050(a), (b) (amended Apr. 15, 2015). To enable the owner to determine whether the tenant is a “qualified tenant,” the ownership change notice is to be accompanied by a “Tenant Information Disclosure Form” partially filled out by the owner.

In sum, the KCRO provides a series of 21-day periods in which the parties are to communicate with each other about their new relationship and whether the tenancy will persist despite the change of owners. Additionally, the Chicago City Council provides significant penalties for violations of the ordinance, including damages, fines, and injunctive relief.

After the mortgagee purchased the property, the renter was provided incorrect contact information for a law firm and a series of property managers purporting to be the mortgagee’s agent, as well as an incomplete “Tenant Information Disclosure Form.”

Ultimately, 67 days after the mortgagee became the new owner, the renter received a letter from the actual property manager, and 24 days thereafter the renter was told the mortgagee wanted the renter to vacate the apartment. Another 96 days thereafter, the renter was offered a lease extension and a week later the renter signed and retuned the lease extension.

The following year the renter sued the mortgagee and four property management companies used by the mortgagee for failure to timely communicate whether the mortgagee was offering $10,600 in relocation assistance or the continuation of her tenancy. The mortgagee moved to dismiss, arguing that the renter’s acceptance of the lease offer demonstrated that the new property owner had been in “full” or “substantial” compliance with the ordinance. The trial court denied the mortgagee’s motion and eventually granted the renter summary judgment.

The mortgagee appealed, seeking reversal of the orders denying its motion to dismiss the pleading and granting renter summary judgment, $21,200 in statutory damages, $45,505 in attorney fees, and $300 in court costs.

On appeal, the mortgagee acknowledged that it was 124 days late in complying with its statutory obligation to offer the renter either $10,600 in relocation assistance or a lease renewal/extension but argued that the trial court erred in denying its motion to dismiss based on its paraphrasing of the ordinance’s stated purpose.

In addition, the mortgagee contended the renter impliedly waived her claim by executing the mortgagee’s untimely lease offer and thus her “acceptance of the untimely lease extension offer had the legal effect of waiving the strict compliance with the [ordinance] on which her complaint is premised,” and, thus the mortgagee was entitled to dismissal of the action.

Finally, the mortgagee argued the renter was not entitled to summary judgment because substantial compliance with the ordinance was sufficient, the mortgagee substantially complied with its obligations, and it would be “absurd” to give the renter the full benefit of the ordinance (which the mortgagee characterizes as uninterrupted tenancy) and then allow the renter to “reverse course” by “recover[ing the] windfall damages.”

The renter responded that “a motion to dismiss cannot be reviewed on appeal following the entry of summary judgment, but since the [mortgagee] renewed the argument in opposition to [the renter’s] motion for summary judgment, this court may consider the theory in that context.” The renter also contended she did not waive her claim by accepting the new lease.

The Appellate Court agreed with the renter that the order denying the mortgagee’s motion to dismiss is not reviewable. Additionally, the Appellate Court was not persuaded that the renter waived her right to damages and fees provided by the KCRO, finding none of the allegations or conduct that the mortgagee cited were indicative of an express waiver, noting a party asserting implied waiver must show a “clear, unequivocal, and decisive act of the party who is alleged to have committed waiver.” Ryder, 146 Ill. 2d at 105.

The Appellate Court next examined the language of the KCRO to assess the mortgagee’s contention that substantial compliance, rather than strict compliance, was sufficient.

The Appellate Court noted the KCRO makes repeated use of the verb “shall” and when interpreting a statute or ordinance, the “use of the word ‘shall’ generally indicates that the legislature intended to impose a mandatory obligation.” Schultz v. Performance Lighting, Inc., 2013 IL 115738, ¶ 16, 999 N.E.2d 331. Another indication that an obligation is “mandatory, as opposed to merely directory,” is that the legislating body “dictate[s] a particular consequence for failure to comply with the provision.” Schultz, 2013 IL 115738, ¶ 16. Furthermore, the combination of a mandatory obligation and a penalty or consequences for noncompliance indicates that strict compliance, rather than substantial compliance is necessary.

Here, the Appellate Court found that because the Chicago ordinance at issue not only imposed mandatory obligations on the mortgagee by using the word “shall” but also mandated the imposition of significant financial consequences for the mortgagee’s failure to comply, the City Council’s language was a clear message that strict compliance is necessary.

Accordingly, the Appellate Court affirmed the trial court’s summary judgment order and the subsequent award of the amount of damages specified in the KCRO.

Finally, the Appellate Court examined the mortgagee’s contention that the attorney fee award was excessive, noting the trial court has broad discretion to award attorney fees and its decision will not be disturbed on appeal absent an abuse of that discretion. Guerrant v.Roth, 334 Ill. App. 3d 259, 262-63, 777 N.E.24 499, 502 (2002). And “[e]ven where the trial court has, in its calculations, included improper fees or excluded recoverable fees, this court will not disturb the judgment unless ‘the total fees and costs awarded *** was [so excessive or] so inadequate as to amount to a clear abuse of discretion ***.’ ” Sampson v. Miglin, 279 Ill. App. 3d 270, 281, 664 N.E.2d 281, 288 (1996).

The Appellate Court found that the mortgagee did not establish that the trial court’s award was an abuse of discretion. The renter’s fee request was supported by affidavits and billing statements which detailed when, what, and by whom the work was performed, including adjustments which reduced fees by almost $9,000. Additionally, the Appellate Court held, the record indicated that the issue of fees was fully briefed and that a hearing was conducted in which both parties had an opportunity to argue.

Accordingly, the Appellate Court affirmed the trial court’s ruling.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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