COVID ends business, but not lease payments, shortly after opening

By Tom Resnick

Q: My husband and I rented office space in 2019 for a small business we were running. The timing wasn't great with COVID around the corner and we struggled during this period. We finally threw in the towel last November. We emailed and spoke to our landlord about this and he seemed very understanding. We vacated the space in November, 2021.

We signed a five-year lease that ran through June, 2024. We just received a letter from an attorney claiming the property was not rented until last month. The landlord is demanding 10 months rent plus any costs and attorneys fees they incur in trying to collect this money.

We understand we signed a lease but COVID prevented us from operating our business profitably. Do we have any defense to their claim? We are not in great financial shape and this expense would take a large chunk out of our savings.

A: From the limited amount of information in your letter, it would appear under the terms of the lease you are responsible for five years rent less the amount of rent you have paid. However, when a tenant breaks a lease, the landlord cannot sit on his/her hands as the damages pile up against the former tenant. The landlord has a duty to "mitigate" his/her damages. This means the landlord, upon learning you were vacating the property, must make a reasonable attempt to locate another tenant.

So, one question to ask the attorney is, what action did the owner or landlord take to find another tenant? Did he run advertising anywhere? Did he hire an agent to market the property? Was there a sign in the property's window?

If the landlord or owner performed some or all of these activities, it is likely a court would find he made a reasonable effort to locate another tenant. If he did none of these things, you would have a pretty good argument that he failed in his/her duty to mitigate his/her damages.

Another possible defense would be the inclusion of a "force majeure" clause in your lease. A force majeure clause generally states a party in a contract may not be held liable under the terms of the contract when that party's failure to perform is due to an event the parties to the contract could not have anticipated or controlled. "Acts of God" and "forces of nature" are often cited as defenses under force majeure.

Review your contract to determine if this clause exists. If it does, does it apply to both parties? If so, I would think this pandemic would qualify as an event that the parties could not have anticipated or controlled and may preclude a court ruling in the owner's favor.

Other defenses possibly exist. I would suggest speaking to an attorney experienced in landlord/tenant litigation for his or her thoughts. Once you determine what defenses you may have, contact the owner's attorney and make an offer to resolve the dispute. It will likely cost you thousands of dollars to litigate this matter; plus, the fact is that if you lose, you will probably have to not only pay your attorney, but the owner's attorney as well.

Q: I am being transferred and my wife and I have sold our home in Barrington. The sale is being handled by the relocation company and their attorney, who I don't believe has done much work in Illinois. Our buyer is asking that the 2022 real estate taxes be prorated at 135% of the last known (2020) tax bill. The attorney explained to me that our assessed valuation rose 36% from 2021 to 2022, hence the request.

Does the rise in assessed valuation automatically result in a similar rise in the tax bill? Any arguments I can make to counter this request?

A: Your real estate tax bill has three components prior to any exemptions being applied: the assessed valuation, the state multiplier and the tax rate. Multipliers and tax rates usually don't move much. The rise and fall of the assessed valuation of a property is usually the most significant factor in determining where your tax bill is heading.

As you will be responsible for most if not all of the 2022 tax bill, it is not surprising your buyer wants to ensure that he or she receives a credit at closing sufficient to cover the actual tax bill. One popular way to avoid, at least temporarily, the large tax credit at closing would be to have your attorney hold, from the sales proceeds, the difference between a 135% tax credit and whatever credit you agree to give the buyer at closing. Then, once the 2022 tax bill comes out next year, determine your actual obligation and pay the buyer, from the escrow, the difference between the credit received by the buyer at closing and the actual 2022 tax obligation.

• Send your questions to attorney Tom Resnick, 910 E. Oak St., Lake in the Hills, IL 60156, by email to tom@thomasresnicklaw.com or call (847) 359-8983.