Rexam v. Bolger Case Sends Signal to Commercial Real Estate Industry

Chicago, IL (PRWEB) December 13, 2010

In a case with important consequences for commercial landlords and tenants in Indiana, Illinois and Wisconsin, the U.S. Seventh Circuit Court of Appeals (appellate court case No. 08-3403 & 09-2071) has upheld the right of a landlord to recover double the current market rent from a tenant that stays past the end of a lease, even if the tenant retains possession to complete repairs demanded by the landlord. The Court also upheld the right of the landlord to recover its attorney fees incurred to recover for uncompleted repairs, even if the attorney fees far exceed the cost of the repairs.

In the case of Rexam Beverage Can Company v. David F. Bolger and the City of Fayette, Iowa, Rexam's predecessor began leasing a 100,000 sq. ft. manufacturing facility in Rockford, Illinois, from Bolger in 1966. Rexam's lease ran for a period of 25 years, with the right to renew the lease for an additional 20 years at five-year intervals, locked in at the 1966 lease rate of 14 cents per square foot, or approximately $14,000 per year. In 2006, however, Rexam failed to timely renew the lease for an additional five-year term.

As a result of the untimely renewal, Rexam's landlord demanded that Rexam turn over the facility in April 2006, and also that Rexam complete certain repairs to the building. Rexam filed suit against its landlords, asserting its right to remain in possession of the facility at the 1966 lease rate. The landlords countersued, seeking to evict Rexam from the facility, recover double the prevailing 2006 market lease rate and recover the cost of certain repairs.

The case was tried in 2008 in the U.S. District Court for the Northern District of Illinois in Chicago (trial court case No. 06-2234). The trial court ruled in the landlord's favor, awarding the landlords $1.2 million in rent for the holdover period of seventeen months, double the prevailing market rate in 2006, and over sixty times the lease rate Rexam had paid for the previous forty years. The Court also awarded $400,000 for necessary repairs and over $800,000 in attorney fees.

Rexam appealed, arguing that the landlords were not entitled to double the 2006 market lease rate because Rexam was forced into a "Hobson's choice" of either leaving without completing repairs, or retaining possession to complete the demanded repairs. The Seventh Circuit disagreed, and upheld the district court's decision that Rexam had willfully remained in possession because it thought it might be able to negotiate new lease terms to the building. The Seventh Circuit did, however, overturn the portion of the holdover rent award that doubled the portion of the rent attributable to utilities, taxes and insurance on the facility.

Rexam also disputed the trial court's award of a portion of the landlord's attorney fees attributable to recovering for the repairs to the facility. The Seventh Circuit upheld the entire award of attorney fees, even though the $800,000 attorney fee award was double the $400,000 recovered for repairs.

The parties recently settled the dispute under confidential terms.

The landlords David F. Bolger and the City of Fayette, Iowa were represented by Anthony Dowell and Geoff Smith of Dowell Baker, PC in Lafayette, Indiana. Rexam was represented by James McLoughlin and Matthew Lincoln of Moore & Van Allen PLLC in Charlotte, North Carolina.

"The law concerning the enforcement of lease provisions is very strict," Dowell said. "Commercial tenants must read and understand their lease. Failure to comply with what may appear to be minor provisions can be devastating."

"The Seventh Circuit's decision contains many important lessons for landlords and tenants," Dowell continued. "First, if a lease has renewal provisions, the tenant must timely renew the lease. The law is very strict on that, and the consequences can be very severe if the tenant enjoys a favorable lease rate or has made significant upgrades to the property. Second, if a tenant does stay past the end of a lease, the tenant is not only subject to the current market lease rate, but also potentially double that rate. Finally, if a tenant is obligated to complete repairs under a lease, they can be subject to not only the cost of the repairs, but attorney fees that far exceed the cost of the repairs."

Dowell Baker, P.C. is a law firm that specializes in commercial litigation and patent enforcement, licensing and prosecution.

For more information, contact Dowell Baker, P.C., 201 Main Street, Suite 710, Lafayette, Indiana 47901, telephone: 765.429.4004, fax: 765.429.4114, http://www.dowellbaker.com/

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