THIRD DIVISION
May 31, 2006
No. 1-05-3295
SAMUEL OLIVA and JAYE VACALA REVOCABLE ) Appeal from the
TRUST, ) Circuit Court of
) Cook County
Plaintiffs-Appellants, )
)
v. )
)
AMTECH RELIABLE ELEVATOR COMPANY and )
OTIS ELEVATOR COMPANY, ) Honorable
) Barbara J. Disko,
Defendants-Appellees. ) Judge Presiding.
JUSTICE KARNEZIS delivered the opinion of the court:
Plaintiffs Samuel Oliva and the Jaye Vacala Revocable Trust filed a breach of
contract action against their tenants, defendants Amtech Reliable Elevator Company
(Amtech) and Otis Elevator Company (Otis), Amtech's lease assignee, seeking
damages for defendants' alleged breach of the parties' agreement to extend an office
lease for an additional three-year term. The circuit court dismissed the action pursuant
to section 2-615 of the Illinois Code of Civil Procedure (735 ILCS 5/2-615 (West 2004)),
finding plaintiffs failed to state a cause of action because defendants had not accepted
the option to extend the lease for an additional three years in writing. Plaintiffs appeal,
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arguing that (1) the court erred in finding the lease required defendants' written notice of
intent to exercise their option to extend the lease and (2) in the absence of a written
notice requirement, defendants exercised their renewal option by paying the increased
rent associated with the second renewal term. We reverse and remand.
Background
The well-pleaded facts in plaintiffs' amended complaint show that on August 17,
1993, plaintiffs entered into a lease with Amtech, agreeing to lease Amtech an office
suite for six years. On February 6, 1999, plaintiffs sent a letter to Amtech, confirming
that Amtech wished to extend its lease for a three-year term. The letter was to be
considered a rider to the original lease and all terms of the new lease period would be
"exactly the same as [Amtech's] original lease except for the following [in salient part]:
1. The original lease is extended for three additional years as follows:
A. September 1, 1999 through August 31, 2000 $3,864.12
B. September 1, 2000 through August 31, 2001 $4,057.33
C. September 1, 2001 through August 31, 2002 $4,260.20
2. Amtech Reliable Elevator has an additional three year option as follows:
A. September 1, 2002 through August 31, 2003 $4,473.20
B. September 1, 2003 through August 31, 2004 $4,696.87
C. September 1, 2004 through August 31, 2005 $4,931.71."
Amtech signed the rider on April 1, 1999. Amtech continued to occupy the
premises and paid plaintiffs the increasing monthly rent as specified for each of the
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three years of the 1999-2002 extension.
On September 1, 2002, upon expiration of the original three-year extension,
Amtech began paying $4,473.20 per month, the increased monthly rent due for the first
year of the optional three-year extension. Amtech paid this amount for 12 months.
In August 2003, Amtech assigned the lease and its extensions to Otis.
On September 1, 2003, Amtech began paying $4,696.87 per month, the
increased monthly rent due for the second year of the optional extension.
On December 1, 2003, Otis notified plaintiffs by letter that it would be vacating
the premises effective January 31, 2004. Otis stated that the lease expired on August
21, 2002, and that Otis, as Amtech's assignee, had been occupying the premises as a
month-to-month tenant.
Plaintiffs filed for breach of contract, alleging when Amtech began to pay plaintiffs
the $4,473.20 specified as the rent due for the first year of the optional extension
Amtech exercised its option to extend the lease for a second three-year period through
August 31, 2005, and Otis breached the lease and extension when it vacated the
premises before August 31, 2005. Plaintiffs sought to recover rent for the balance of
the three-year extension.
Defendants filed a combined motion to dismiss the amended complaint pursuant
to sections 2-615 and 2-619(a)(7) of the Illinois Code of Civil Procedure (735 ILCS 5/2-
615; 2-619(a)(7) (West 2004)). Defendants asserted, pursuant to section 2-615, that
plaintiffs failed to state a cause of action for breach of contract because written notice
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was required to exercise the optional extension and defendants provided no such
written notice; a lease option provision is a privilege belonging to the tenant and is not
enforceable by the lessor; defendants were holdover tenants with the right to terminate
the lease with 30 days notice, which they properly did; and plaintiffs seek future
accruing rents in violation of Illinois law. Defendants also argued, pursuant to section 2-
619(a)(7), that the alleged second three-year extension was unenforceable because it
did not comply with the statute of frauds (740 ILCS 80/1 (West 2004)).
The court dismissed the amended complaint pursuant to section 2-615 of the
Code, finding the lease required written notice of an intent to exercise the extension
option and, because plaintiffs concede defendants did not give such notice, plaintiffs
failed to allege their performance of the contract and thus failed to state a cause of
action for breach of contract. The court denied plaintiffs' motion for reconsideration and
plaintiffs appealed.
Analysis
A section 2-615 motion to dismiss is based on the pleadings rather than the
underlying facts, admits all well-pleaded facts on the face of the complaint and attacks
the legal sufficiency of the complaint, alleging only defects on the face of the complaint.
Neppl v. Murphy, 316 Ill. App. 3d 581, 584, 736 N.E.2d 1174, 1178 (2000); Elson v.
State Farm Fire & Casualty Co., 295 Ill. App. 3d 1, 6, 691 N.E.2d 807, 811 (1998).
Viewing the complaint in the light most favorable to the nonmoving party, here plaintiffs,
we must determine whether the complaint alleges facts sufficient to state a cause of
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action upon which relief may be granted (Ziemba v. Mierzwa, 142 Ill. 2d 42, 46-47, 566
N.E.2d 1365, 1366 (1991)) and do not consider the merits of the case (Elson, 295 Ill.
App. 3d at 5, 691 N.E.2d at 811)). In making that determination, we take as true all
well-pleaded facts of the complaint, drawing all reasonable inferences therefrom in favor
of the nonmoving party and disregarding mere conclusions of law unsupported by
specific factual allegations. Krueger v. Lewis, 342 Ill. App. 3d 467, 470, 794 N.E.2d
970, 972 (2003); Ziemba, 142 Ill. 2d at 47, 566 N.E.2d at 1366. Our standard of review
is de novo. Neppl, 316 Ill. App. 3d at 583, 736 N.E.2d at 1178.
A lease is a contract between landlord and tenant and rules of contract
construction apply to the construction of leases. Williams v. Nagel, 162 Ill. 2d 542, 555,
643 N.E.2d 816, 822 (1994). In order to state a cause of action for breach of contract,
plaintiffs must allege the existence of a valid and enforceable contract, substantial
performance by plaintiffs, breach of the contract by defendants and resultant injury to
plaintiffs. W.W. Vincent & Co. v. First Colony Life Insurance Co., 351 Ill. App. 3d 752,
759, 814 N.E.2d 960, 967 (2004).
The court found plaintiffs failed to state a cause of action because (1) the lease
required Amtech to notify plaintiffs in writing of its exercise of the option to extend the
lease for an additional three-year term and (2) plaintiffs conceded Amtech did not give
such written notice. Contrary to the court's finding, neither the lease nor the rider
requires Amtech to give notice in writing of its intention to exercise its option to extend
the lease. In fact, there is no requirement in either agreement that Amtech give any
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notice whatsoever of its intention regarding the option.
Defendants assert that provision 18 of the lease, relied on by the court, states a
written notice requirement for exercise of the option to extend. The provision provides
"any notices required or permitted to be given under this Lease shall be effective only if
given in writing." However, besides the quoted provision, which refers to notice
generally, the lease contains no requirement that Amtech must provide notice of its
intent to exercise an option to extend. 1 Similarly, the rider contains no requirement that
defendants provide notice of their intent to exercise the option to extend. In fact, the
rider makes no mention of notice at all, requisite or otherwise. Accordingly, because
neither the lease nor the rider required Amtech to provide any notice of its intent to
exercise the option, no written notice of exercise of the option was required.
Since neither the lease nor the rider states a notice requirement, the question
becomes whether the law requires some type of written or verbal notice of an exercise
1
The lease originally contained a written notice requirement for exercise of an
option to extend. However, presumably because the underlying lease did not contain
an option to extend, the notice provision was scratched out. It was not reinstated when
the rider subsequently provided for an option to extend.
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of an option to extend a lease where the agreement between the parties setting forth
the option is silent regarding notice. It does not. An option to extend the term of a lease
is not an obligation; rather, it is a privilege belonging to the tenant, without any
corresponding right or privilege in the landlord. T.C.T. Building Partnership v. Tandy
Corp., 323 Ill. App. 3d 114, 119, 751 N.E.2d 135, 140 (2001). Where, as here, a tenant
has the privilege of extending the term of a lease, as distinguished from renewing a
lease, no notice of the tenant's election is required in the absence of a stipulation
requiring such notice, "merely remaining in possession being sufficient notice." Vincent
v. Laurent, 165 Ill. App. 397, 403 (1911). The holding over by the tenant operates as
sufficient notice to the landlord that the tenant has elected to exercise its option. Smith
v. Bradley, 336 Ill. App. 272, 274-75, 83 N.E.2d 365, 366 (1949). Moreover, any
requirement that a tenant notify a landlord of the tenant's intention to exercise an option
to extend a lease inures to the benefit of the landlord and thus can be waived by the
landlord. Tandy Corp., 323 Ill. App. 3d at 120, 751 N.E.2d at 140. Unless the facts
show otherwise, by accepting the increased rental, plaintiffs waived any notice to which
they might have been entitled.
When Amtech remained in possession of the premises after expiration of the first
three-year extension and paid the increased rent required under the option to extend
the lease for a second three-year term, barring evidence to the contrary, it exercised
that option to extend for the stated term.
As a basic proposition, a landlord's acceptance of rent after the expiration of a
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lease containing an option to renew but no provision as to how or when that
option was to be exercised creates a tenancy from year to year. Butz v. Butz, 13
Ill. App. 3d 341, 299 N.E.2d 782 (5th Dist. 1973). However, where, as here, the
option provided for increased rent to be paid during its term and the tenant paid
that increased rent, we find that the tenant has exercised its option to extend for
the stated term, in this case three years. " '[A] tenant who holds
over after the expiration of his term may, at the election of the landlord, be held to
be either a trespasser or tenant for another similar term.' [Commonwealth
Building Corp. v. Hirschfield, 307 Ill. App. 533, 536, 30 N.E.2d 790, 792 (1940).]
To constitute a 'holding over' so as to trigger the landlord's option, the tenant's
continued possession of the premises 'must be voluntary,' that is, the action of
the tenant must 'disclose the right of the landlord to assume an intention on the
tenant's part to create a second tenancy.' [Hirschfield, 307 Ill. App. at 536, 30
N.E.2d at 792.]" Hoffman v. Altamore, 352 Ill. App. 3d 246, 250-51, 815 N.E.2d
984, 988 (2004).
On the facts of the complaint, it was reasonable for plaintiffs to assume that Amtech
affirmatively indicated its intent to exercise the option by staying on the premises and
paying the higher rent due under the option. Clearly, when a tenant voluntarily
continues to possess the premises and pays the higher rent specified under an option to
renew, the landlord can assume from this action that the tenant intends to create
another tenancy, the tenancy covered by the option.
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This is especially true where, as here, the tenant cannot be considered merely a
month-to-month holdover tenant. Notwithstanding defendants' argument to the
contrary, the amended complaint does not support their assertion that they are merely
month-to-month holdover tenants under the lease. Provision 23.8 of the lease defines
"Holding Over" as follows: "Any holding over after the expiration of the Term with the
consent of the Landlord shall be construed to be a tenancy from month to month at the
Rent payable during the final full lease year (prorated on a monthly basis)." Amtech
does not meet these parameters. Although it remained on the premises after expiration
of the first three-year extension, it did not continue to pay the rent it had been paying
during the last year of that lease extension. Rather, it began paying the higher monthly
rent due for the first year of the optional three-year extension, as set out in the rider, and
continued to pay that amount for the next 12 months. Accordingly, after expiration of
the three-year extension, Amtech did not become a month-to-month holdover tenant
under the lease. Instead, barring evidence of a contrary intention, Amtech continued its
tenancy under the optional three-year extension of the lease when it exercised that
option by remaining on the premises and paying the higher rent specified as due under
the option.
As the court noted, no Illinois case has specifically held that, in the absence of a
notice requirement, a tenant's continued possession of premises and payment of the
increased rent specified in an optional lease extension operate as an exercise of that
option. The single case precisely on point, Harris v. Gindes, 265 A.2d 598 (D.C.App.
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1970), is from another jurisdiction. In Harris, as in the case at bar, a lease provided the
tenant with an option for an additional term at an increased rent. The option contained
no notice requirement and the tenant gave no notice before remaining in possession of
the leased premises and paying the increased rent. The court held that the tenant
affirmatively indicated his intent to exercise the lease option for an additional two-year
term by remaining in possession of the leased premises and paying the increased rent
required by the option. Gindes, 265 A.2d at 599. The court noted that, even if the
tenant was required to give some form of notice of his intention prior to or concurrent
with expiration of the original term, such notice would be for the landlord's benefit and
could be waived by the landlord. Gindes, 265 A.2d at 599. By accepting the increased
rent, the landlord waived notice "and both he and the tenant were obligated for the
renewal term." Gindes, 265 A.2d at 599. The same applies here.
The amended complaint sufficiently alleged that Amtech exercised its option to
extend the lease for an additional three-year term when it remained in possession of the
premises and paid the increased rent and that Otis breached the extension agreement
when it vacated the premises before that term expired. The court erred in dismissing
the amended complaint for failure to state a cause of action on this basis.
Statute of Frauds
Defendants argue alternatively, pursuant to section 2-619(a)(7) of the Code, the
complaint should be dismissed because the alleged agreement to extend the lease for a
second three-year term fails to comply with the statute of frauds. The court did not
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address this issue, having dismissed the complaint for failure to state a cause of action,
but we may affirm the court on any basis in the record. Park Superintendents'
Professional Ass'n v. Ryan, 319 Ill. App. 3d 751, 757, 745 N.E.2d 618, 624 (2001).
Subject to de novo review, a section 2-619 motion to dismiss admits the legal
sufficiency of the complaint and raises defects, defenses or other affirmative matters,
such as noncompliance with the statute of frauds, which avoid the legal effect of or
defeat a claim. Borowiec v. Gateway 2000, Inc., 209 Ill. 2d 376, 383, 808 N.E.2d 957,
962 (2004). Interpreting all pleadings and supporting documents in the light most
favorable to the nonmoving party, the defect, defense or affirmative matter must be
apparent on the face of the pleading attacked or be supported by affidavit. Borowiec,
209 Ill. 2d at 383, 808 N.E.2d at 962.
The statute of frauds provides in salient part:
"No action shall be brought, * * * upon any agreement that is not to be
performed within the space of one year from the making thereof, unless the
promise or agreement upon which such action shall be brought, or some
memorandum or note thereof, shall be in writing, and signed by the party to be
charged therewith * * *. " 740 ILCS 80/1.
Defendants posit that any agreement to extend the lease for a second three-year term
could not be performed within the space of one year, either from the date of the rider or
from the date the first three-year extension expired and, therefore, such an agreement
would violate the statute of frauds unless it is in writing. Defendants argue that the rider
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is, in salient part, merely an option to extend the lease for a second time which had to
be accepted in writing and, because they never agreed in writing to exercise that option,
plaintiffs' claims are barred by the statute of frauds.
"Where the extended term of the lease is fixed in the original lease and comes
into existence by the exercise of the option and the giving of the required notice, lessee
holds for the extended term by virtue of the original lease which is in writing and
satisfies the statute [of frauds]. [Citation.] This rule may apply even where the notice of
intention to exercise the option is verbal." Kaybill Corp. v. Cherne, 24 Ill. App. 3d 309,
321, 320 N.E.2d 598, 608 (1974). As discussed previously, the parties' agreement
contained no requirement that the option be accepted in writing. In the absence of a
written notice requirement, the option could be accepted verbally or, as here, by
Amtech's voluntary action manifesting its exercise of the option. The lease and rider
satisfied the statute of frauds, being memorialized in a writing signed by the parties.
Incorporated within these writings is the option to extend the lease, which Amtech
exercised by holding over and paying the increased rent due for the new term.
Defendants held possession of the premises by virtue of the original lease and rider
which were in writing and satisfied the statute of frauds. Kaybill Corp., 24 Ill. App. 3d at
321, 320 N.E.2d at 608.
For the reasons stated above, we reverse the decision of the circuit court and
remand for further proceedings.
Reversed and remanded.
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HOFFMAN, P.J., and ERICKSON, J., concur.
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