In a recent case out of Illinois, Uncle Tom’s, Inc. v. Lynn Plaza, LLC, No 1-20-0205, 2021 Ill. App. LEXIS 259, an appellate court held that a restaurant tenant that signed an estoppel certificate was barred (estopped) from suing its landlord for improper common area maintenance (CAM) expenses and management fees.
Since 1978, Uncle Tom’s (Tenant) was operating a restaurant in a strip mall center owned by Lynn Plaza, LLC (Landlord), pursuant to a Lease that required Tenant to pay its pro rata share of Landlord’s CAM expenses. The Lease provided that “[u]nder no circumstances [could Landlord] charge [Tenant], its customers and employees any fees for parking.” In 1989, Landlord started to include in CAMs various charges associated with its rental of an easement from Commonwealth Edison (ComEd) for the center’s parking lot. Several years later, in 1997, Landlord started to include property management fees in CAMs. After Tenant received its CAM reconciliation statement for 1997, Tenant’s attorney sent a letter to Landlord objecting to the inclusion of property management fees because the Lease stated that Landlord was not “entitled to any fee or expense for the management of the common area funds.” In response, Landlord asserted that this language only precluded fees for “managing the funds” but not fees for “managing the property.” Thereafter, Tenant began to pay the property management fees as part of CAMs. Later that year, Tenant executed an estoppel certificate representing to Landlord’s lender that Tenant had “no defenses to or offsets against the enforcement of the Lease or any provisions thereof by the Landlord.”
In 2011, after a dispute with Landlord over a renewal term, Tenant filed a lawsuit against Landlord challenging the inclusion of the easement rental fees and the property management fees in CAM expenses. The trial court ruled in favor of Landlord and Tenant appealed. The Appellate Court found that, regardless of whether Landlord was permitted under the Lease to include these charges as part of the CAM expenses, Tenant was “estopped” from challenging such expenses because at the time it signed the estoppel certificate, Tenant knew about the disputed CAM expenses and even hired an attorney to dispute the property management fees. The Appellate Court held that “[b]y executing the estoppel certificate, Tom’s was certifying that [t]here [were] no defenses to or offsets against the enforcement of the Lease or any provision thereof by Landlord.”
This decision is an important reminder for tenants to carefully review their estoppel certificates before executing them and potentially waiving their rights to later dispute improper previous charges or any other landlord default. Tenants wanting to preserve their rights must expressly reserve any disputed claims when signing estoppel certificates to avoid similar outcomes.