Illinois Appellate Court Resolves Breach of Lease Agreement Because of Damage to Property

Menzies Aviation and CenterPoint Properties Trust entered into a 10-year lease for a warehouse near Chicago’s O’Hare International Airport in 2007. CenterPoint owned the warehouse, while Menzies operated an aircargo handling business that included the use of 15,000- and 30,000-pound forklifts. The warehouse was a single-story, 185,000-square-foot structure built in 1998.

The warehouse had a 6-inch concrete slab that did not show any damage in 2007. However, by January 2009, the concrete slab was cracking and scaling along the surface and was damaged along the contraction joints.

This type of wear was not typical, but rather was caused by Menzies’ use of heavy forklifts.

Menzies notified CenterPoint in 2009 of the damage to the concrete slabs. CenterPoint paid for repairs that totaled $92,000, but then CenterPoint refused to pay any additional sums. CenterPoint did not submit a claim to its insurance company for the damage. Eventually the slab in the warehouse became so worn that it needed to be replaced at a cost between $966,000 and $1.23 million.

Menzies sued CenterPoint for breach of contract, and CenterPoint counterclaimed for damages. Both parties argued that the other was responsible for replacing the slab and had breached the lease agreement by failing to do so.

A bench trial was held in the U.S. district court that held neither party was entitled to recovery. The district court judge found that the slab had a dual function as a floor and a foundation and that the damage was related to its use as a floor, for which Menzies was responsible.

However, the district court judge also found that CenterPoint was required to give timely notice to Menzies in the event of a breach and that its failure to do so precluded its counterclaim. Menzies filed an appeal to the U.S. Court of Appeals for the Seventh Circuit in Chicago.

The appellate panel noted that the lease did not use the term “slab” or define the terms “floor” or “foundation.” The lease did state that aircargo handling was one of the permitted uses of the space and that Menzies agreed to accept the space “as is” without any warranties by CenterPoint.

The lease also made Menzies responsible for repairing “all floors” while CenterPoint was responsible for repairing the “foundation.”

Menzies argued in the court of appeals that the district court rewrote the lease by introducing a “functionality” test to determine what the “floor” was and what the “foundation” was. The panel rejected that argument.

The panel also rejected Menzies’ argument that CenterPoint should be responsible for repairing damage based on the definition of damage found in the case of Rickher v. Home Depot, Inc. The panel stated that adopting such a definition would have the effect of leaving several provisions of the contract out of the lease entirely.

Last, Menzies argued that ambiguous contract language was not sufficient to assign away the landlord’s responsibility for structural repairs required under Illinois law.

In citing Kaufman v. Shoe Corp. of Am., the appellate court noted that contract provisions that shift responsibility for such repairs under Illinois law to tenants must be plainly set out in the lease agreement. In this case, the appellate panel agreed that the district court’s determination that the lease plainly stated that repair and replacement responsibility for the interior of the building was with the tenant, not the landlord. Even with some ambiguities, the appellate court agreed with the district court that there would be no shifting of responsibility for certain structural repairs. Accordingly, the U.S. Court of Appeals affirmed the decision of the district court, meaning that the case ended in a tie. No one won.

Aeroground Inc. v. CenterPoint Properties Trust, No. 13-1956, U.S. Court of Appeals for the 7^th Cir. (Dec. 23, 2013).

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