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In re Verdun
Emmanuel Guyon, Streator, Ill., for debtors.
Terrence Corrigan, Springfield, Ill., for State of Ill.
David Hoff, Paris, Ill., for Farmers Home Admin.
Scott Swaim, trustee.
OPINION
GERALD D. FINES, Bankruptcy Judge.
This matter is before the Court on the Petition to Authorize Use and Right to Lease for a period of Chapter 12 Reorganization filed herein by the debtor, Arthur Joseph Verdun, and on the Motion for Relief from Automatic Stay filed by the People of the State of Illinois, ex rel. Michael Tristano, Director of the Department of Central Management Services for the State of Illinois, and Michael P. Lane, Director of the Department of Corrections of the State of Illinois (State). A hearing was conducted on these matters on August 11, 1988, and again on September 8, 1988. In deciding the matters before it, the Court has considered the arguments of counsel, the Memoranda of Law submitted by the parties, the agreed facts, and exhibits submitted to the Court. The Court finds the following undisputed facts to be relevant to the determination of the matters presented in the motions of the parties.
1. On November 1, 1980, debtor entered into a farm lease with the State of Illinois to lease certain acreage located at the Dwight Correctional Center in Dwight, Illinois, containing at that time 42.97 rotated acres more or less and 39.4 acres of hay. Said lease was for a term from January 1, 1981, through December 31, 1983.
2. In December 1983, debtor renegotiated with the State of Illinois and, as a result, a new farm lease was executed to cover 35.5 acres rotated crops and 39 acres of hay. The lease was for a term to begin January 1, 1984, and to end December 31, 1986. Under this lease, the debtor was to pay a sum of $136.50 per acre for the rotated crop acreage and $16 per acre for hay acreage, for a total annual rent due of $5,469.75. The evidence indicated that this lease did continue through December 31, 1986, and that, up until that point in time, the debtor was successful in making the annual cash rent payment. (See Appendix A, State of Illinois Farm Lease.)
3. In November 1986, prior to the termination of the above-mentioned farm lease, the debtor submitted a bid to the State of Illinois to re-lease the Dwight Correctional Center property at the rate of $62 per acre for the rotated crops and $6 per acre for the hay acreage for a total of $2,435. (See Appendix B, Bid Form Dwight Correctional Center.)
4. On December 30, 1986, the Department of Central Management Services for the State of Illinois, S. Michael Bartletti, Manager, Real Estate Division, wrote a letter to the debtor advising him that his bid for leasing the Dwight Correctional Center farm land was being rejected, the Department of Corrections having determined that it was in the best interest of the State to allow the Correctional Center to farm the ground. (See Appendix C, Department of Central Management Services Letter.)
5. At the same time, the debtor presented a State of Illinois farm lease agreement form to the State for a lease term to begin January 1, 1987, and end December 31, 1987. This lease form included rent in the amount proposed in the debtor's bid. This lease was never executed by the State nor is there any indication of any further correspondence between the State and the debtor at the time.
6. During the 1987 crop year, the debtor continued to occupy and farm the correctional center property. This was done absent an executed lease for 1987 or any type of agreement with the State as to this land. The debtor did not tender any type of rent payment to the State for the 1987 crop year and has not done so to this date.
7. The debtor again occupied the land in question in the Spring of 1988, at which time he planted soy beans on the rotated acreage.
8. In June 1988, the State filed a Forcible Entry and Detainer action in Livingston County, Illinois, to regain possession of the land in question.
9. The Livingston County action was stayed by this Court pending a determination on the issues addressed in the pleadings before this Court.
The first issue which the Court must consider is whether this Court has jurisdiction to determine the questions before it. The Court finds that, pursuant to 28 U.S.C. § 1471(e), the Bankruptcy Court has exclusive jurisdiction over all of the property of the debtor as of the date the debtor filed his petition in bankruptcy. The Court interprets § 1471(e) to include property of which the debtor has possession at the time of the commencement of his bankruptcy case and property as to which the debtor asserts an ownership interest. In the instant case, the debtor not only was in possession of the property in question, but also asserts that he has an ownership interest in said property. Given these facts, the Court finds that it has jurisdiction to decide the status of the leasehold interest which debtor claims in the Dwight Correctional Center property.
In his petition, the debtor claims that the combination of inaction on the part of the State of Illinois and his occupancy of the property in question for two crop years after the expiration of his written lease results in the creation of a holdover tenancy for a term equal to that of the expired lease. The debtor asks that the Court allow him to continue to farm the subject property for the period of his Chapter 12 plan of reorganization which is to conclude in 1992.
In reviewing the facts before it, the Court finds that it is clear that the debtor did occupy the property in question under two written leases, each having a term of three years, and that the last written lease expired in December 1986. There is no question that the debtor attempted to negotiate a new lease with the State for crop year 1987, but the State rejected debtor's proposed terms and no new written lease was entered for the 1987 crop year. Despite the State's written rejection of the debtor's proposed lease, the debtor continued to occupy the subject property in 1987 and again in 1988. It is on this basis that the debtor claims a holdover tenancy was created for a like term as his two previous leases.
In order to determine whether a holdover tenancy has been created, the Court must turn to Illinois law. The Court finds that the law in Illinois as to the creation of a holdover tenancy requires that a landlord must elect to treat a tenant, after the expiration of his lease, as a tenant for another term on the same conditions as in the original lease. In Illinois, the focus is on the intention of the landlord as to a holdover tenancy and not the tenant's action. Bismarck Hotel Co. v. Sutherland, 92 Ill.App.3d 167, 47 Ill.Dec. 512, 415 N.E.2d 517 (1981). Further, the mere fact that a landlord does not take any active steps to regain possession after a lease expires is not considered sufficient to create a new tenancy. The Cairo and St. Louis Railroad Co. v. Wiggins Ferry Co., 87 Ill. 230 (1876). In this case, the facts clearly indicate that the State did not intend to create a new tenancy given its letter to the debtor of December 30, 1986, rejecting the debtor's proposal for a new lease for 1987, (Appendix C), and while the State was negligent in failing to take certain action to regain possession of the subject property; this does not in itself act to create a holdover tenancy.
In reviewing Illinois law on the creation of holdover tenancies, this Court has seen a common thread which runs through all cases wherein a holdover tenancy was found; that being the acceptance of rent payments by the landlord. Wanous v. Balaco, 412 Ill. 545, 107 N.E.2d 791 (1952), and Bismarck Hotel, supra. In the case at bar, it is undisputed that no rent payments were accepted by the State nor for that matter were any payments ever tendered by the debtor. The debtor argues that he was ready to tender payment in 1987, but never received instructions from the State as to who and where to pay. The Court is not impressed by this argument given the fact that debtor's previous leases included this information and the debtor could have requested further information from the State at any time. Additionally, the lease which debtor proposed for 1987 specified the place of payment.
In conclusion, given the undisputed facts of this case and their relation to Illinois law, this Court cannot find that a holdover tenancy has been created and, even if this Court were to find a holdover tenancy, such a tenancy would only include crop year 1989 based upon the previous leases, and not a period as long as the debtor requests. As such, the Court must DENY the debtor's Petition to Authorize Use and Right to Lease for a Period of Chapter 12 Reorganization. The Motion for Relief from Automatic Stay filed by the State on August 11, 1988, is ALLOWED.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. APPENDIX A
EXHIBIT A
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5. ASSIGNMENT: Lessee will not assign or sublet this lease in whole or in part without first obtaining the Lessor's written consent.
6. NOTICES: All notices will be sent by certified mail. Notices to the State of Illinois should be directed to the Department of Central Management Services, Bureau of Property Management, 712 Stratton Office Building, Springfield, Illinois 62706.
7. WAIVER OF WARRANTY: Lessee agrees that he has fully inspected the leased property and takes it as is. The State reserves warranties of any kind and disclaims any responsibility for visible or latent defects in the demised premises.
8. LESSEE'S INVESTMENT AND EXPENSES: The Lessor will not compensate and Lessee agrees to furnish the following items at its own expense:
A. All machinery, equipment, labor, fuel and power necessary to farm the premises in a satisfactory manner.
B. All hauling of all materials needed for making repairs or minor improvements to the premises, except where otherwise agree to.
C. All labor required for repairing or improving the premises, except where otherwise agreed to.
D. All seed, inoculation, disease treatment materials, fertilizers, herbicides and insecticides.
E. Plowing.
F. Insurance on equipment and employees as provided in Section 14 of the lease.
G. Any taxes assessed against the leasehold interest or crops as provided in Section 16 of the lease.
E. Any other materials or work expended during the term of the lease, except as otherwise agreed to.
9. LESSEE'S DUTIES:
A. In addition to the prompt payment of all rent, Lessee agrees to perform the following required activities:
1. To cultivate the farm faithfully and in a timely, thorough and businesslike manner.
2. Keep the premises neat and orderly.
3. Prevent all unnecessary waste, loss or damage to the property of the State.
4. Comply with the rules and regulations of the Illinois Pollution Control Board.
5. Practice fire prevention and follow safety rules.
6. Keep all vehicles and other equipment located on the premises locked with keys removed when not attended. Lessee is solely responsible for all unattended equipment.
7. Maintain a record of soil treatment as indicated on forms provided by the Lessor for this purpose. Lessee is also required to provide a supplier's statement which includes the amounts of lime and fertilizer purchased and the date of purchase. (Form Attached)
A copy of these records will be forwarded to the Illinois Department of Corrections, Correctional Industries Division, 1301 Concordia Court, Springfield, Illinois 62706 (Attention: William Beaty)
8. Use due care in farming around now existing manholes and telephone poles. Lessee will be solely responsible for any damage to any manholes or telephone poles.
9. Allow the Lessor access to all roads and trails on the premises. Lessor agrees to jointly maintain with Lessee any road or trail that the Lessor uses on a regular basis.
Lessee agrees to maintain all other roads and trails on the premises in a condition equal to or exceeding the condition of such roads or trails on the date Lessee took possession of premises.
B. Lessee further agrees to refrain from the following activities unless it has received the Lessor's written consent:
1. Lessee will not erect or permit any structure to be erected or to incur any expense on behalf of the Lessor for such a purpose.
2. Lessee will not add electrical wiring, plumbing or heating to any building without the express written consent of Lessor.
If consent is given all such additions must meet any applicable codes and standards.
3. Lessee will not borrow against, use as collateral or encumber in any way any crops growing in or produced by the premises.
4. Lessee will not use any buildings or other structures located on the demised premises.
5. Lessee agrees not to plow permanent pasture or meadowland.
6. Lessee will not cut live trees for personal use or for sale.
7. Lessee will not permit the erection of any commercial advertising signs on the farm.
8. Lessee will not pasture stock on now seedings of legumes or grasses in the year they are seeded.
9. Lessee agrees not to block any road entrance or crossing so as to inhibit the State's access in any way.
C. Additional agreements: ------
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10. ACCESS TO PREMISES: The Lessor will designate all points of access to the premises.
11. OPERATIONS TO BE CONDUCTED WITHIN PREMISES: All farming, plowing, turning, crop removal and other operations will be within the confines of land actually rented and not on adjoining lawns, yards, fields or other areas including areas planted in grass surrounding the premises and running along highways.
12. LESSOR'S RIGHT OF ENTRY: Lessor will have the right to enter at any time to inspect fields, ditches, tile outlets, fences or any other part of the leased premises, and to repair or do any other work Lessor considers necessary or desirable.
13. RELEASE AND INDEMNITY: The Lessee agrees to assume all risk or loss and to indemnify and hold the State, its officers, employees or agents harmless from and against all liabilities, demands, claims, suits, losses, damages, causes of action, fines or judgments, including injuries to persons (including death) and for the loss of, damage to, or destruction to property (including property of the State) because of lessee's negligent or intentional acts or ommissions. In the event that any demand or claim is made or suit is commenced against the State, the State shall give prompt notice thereof to the lessee and lessee shall have the right to compromise or defend the same to the extent of its own interest.
14. INSURANCE: For the term of the lease, lessee shall maintain insurance with a carrier acceptable to the State, insuring lessee while performing on State premises hereunder for the following types and in stated minimum amounts:
Liability Insurance: $250,000 per person$500,000 per occurrence Property Damage: $500,000 per occurrence Workers Compensation: Full Statutory Limits Crop Insurance: Equal to Contract Amount
Lessee shall furnish a Certificate of Insurance and agrees that all applicable insurance policies be amended to name the State as an additional insured and to receive notice of termination of coverage.
15. TAXES: Lessee is solely responsible for any taxes of any kind or character assessed against his leasehold interest or against crops on premises or any other incident of this lease pursuant to Section 19.5 of the Illinois Revenue Act.
16. LANDLORD'S LIEN FOR RENT AND PERFORMANCE: The Lessor is entitled to the Landlord's lien provided by law on crops grown or growing on the premises as additional security for the specified rent and for the faithful performance of the terms of the lease by the Lessee. (Image Omitted) (Image Omitted) (Image Omitted) (Image Omitted) (Image Omitted) APPENDIX B
EXHIBIT B
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Page 414.
APPENDIX C
EXHIBIT C
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