Easement Dispute Delays Development At Clinton And Harrison Streets.

In 2006, investors William Pacella, George Bonomo, and Vahooman “Shadow” Mirkhaef began planning their construction of a 33-story, 276-unit high rise at the corner of Clinton and Harrison, in the shade of the Old Post Office Building. Today, though swept into PD 1065 (governing the redevelopment of the Old Post Office), the property remains a surface parking lot with no sign of development life. Protracted litigation no doubt bears a substantial portion of the blame: For more than seven years, 527 S. Clinton LLC (the developer) has been sparring over easement rights with Westloop Equities, L.L.C., the owner of the adjacent Holiday Inn.

Here’s what’s been happening: In 1983, the parking lot owner granted easements to the hotel owner for both access and parking. Under the access easement, all persons, whether on foot or by car, were granted perpetual and non-terminable rights of ingress and egress through and across the parking lot property. Under the parking easement, registered hotel guests were granted free parking and patrons of the hotel restaurant were entitled to certain parking privileges. Unlike the access easement, the parking easement was to “remain in force and effect so long as the property is operated as a hotel” and, moreover, “[c]easing to operate the subject hotel as a hotel business” would cause the easement to “terminate immediately and without notice.” The hotel’s fortunes soon turned for the worse, and the business was shuttered in the late 1980’s. Bankruptcy ensued. In 1998, it was ultimately acquired by Westloop Equities, substantially refurbished, and reopened as the Holiday Inn that operates there today.

In March 2007, the developer informed Westloop Equities of its intention to build on the parking lot adjacent to the Holiday Inn, which yielded an unfriendly legal letter asserting that any such development would violate the terms of the 1983 access and parking easements. With a controversy thus brewing, the developer filed suit, seeking declaratory judgments that (i) the parking easement terminated in 1986 at the beginning of a lengthy period during which the hotel operations ceased and (ii) the access agreement would not be violated under the terms of the proposed development plan.

In August 2009, more than two years after the case was filed, the trial judge ruled that, irrespective of whether the court employed the twenty-year statute of limitations governing recovery of lands or the seven-year statute of limitations governing breaches of “conditions subsequent,” the developer failed to take action to terminate the easement in timely fashion after the hotel ceased operations in the mid-1980’s and therefore could no longer claim that the parking easement expired. The case then proceeded to trial on the access easement issue and, after hearing testimony from, among others, James Plunkard, the developer’s architect, the court ruled that the new high-rise would interfere with access to and from the hotel, despite careful plans to ensure that access would not only be preserved, but enhanced. A directed finding was entered in favor of Westloop Equities at the close of the developer’s case.

The developer appealed, successfully. In a July 2010 opinion, the court of appeals ruled that the operative language of the parking easement — that it would remain in effect only “so long as” the property was operated as a hotel and that, upon any ceasing of hotel operations, it would immediately terminate — did not constitute a “condition subsequent” under the law. It reasoned that, since the ownership interest in the land remained at all times with the would-be developer, “no right of reentry or reverter [was] necessary to revest the grantor of [the] easement with absolute ownership.” The court therefore rejected application of any statute of limitations, let alone the seven-year statute of limitations applicable to “conditions subsequent.” As for the twenty-year statute of limitations, otherwise known as “adverse possession,” the court noted that such a claim requires that there be 20 years of, among other things, continuous, hostile or adverse possession under a claim of title inconsistent with the claim of the true owner.  Having noted that the hotel was not even operative between 1986 and 1999 and that, after it was reopened, no request to use the parking rights was ever made to the developer (or its predecessor), there could be no viable claim of adverse possession.

Next, the court of appeals ruled that the trial judge erred by concluding that the access easement extended over the entirety of the developer’s property and therefore that any structure on the property would necessarily interfere with ingress and egress. Noting that the access easement failed to specify any exact boundaries, the appellate court held that, “[w]hen unspecified, the dimensions of an easement will be construed as those reasonably necessary and convenient for the purposes for which the easement was created.” Thus, it ruled that the hotel’s access easement would not be impinged so long as ingress and egress were made possible through a lane whose width and location were reasonably necessary and convenient. Indeed, the court stated that the owner of the servient estate (the developer) could modify or relocate the easement so long as “substantial harm” was not caused to the owner of the dominant estate (the hotel). Accordingly, the entire case was reversed and remanded.

Back in circuit court, the hotel owner raised a series of defenses to the developer’s contention that the parking easement expired. Among other things, the new hotel owner argued that the original hotel’s bankruptcy created an automatic stay that precluded the easement from being extinguished, but the trial court disagreed. It found that the automatic stay under the Bankruptcy Act did not apply to “easement rights” and, moreover, that the bankruptcy ended before the new hotel commenced operations, creating a clean break and extinguishing the parking easement. The new hotel owner also attempted to invoke waiver, but the trial court rejected the argument, finding that the new hotel owner never demanded free parking privileges under the easement and that the developer allowed certain parking rights under a “handshake agreement.”

With respect to the access easement, the trial court entered summary judgment in favor of the developer, finding that the proposed construction of the high-rise would not “negatively impact the [hotel owner’s] ingress-egress rights.” It made this finding based upon competing affidavits filed by the parties, with the hotel’s witnesses claiming that the development would impede access to dumpsters and interfere with ingress and egress during the construction phase, while the developer’s witness testified that ingress and egress would not be impeded.

This time, the hotel owner appealed and won at least a partial victory. In a March 2014 disposition, the Illinois Appellate Court affirmed the trial court’s finding that the parking easement expired, but reversed its finding that the access easement would not be negatively affected by the proposed development. The court of appeals started with a review of the law regarding easements. It stated that “[w]hether a party should be allowed to proceed with a proposed change to an easement requires a consideration of the substantiality of the change.” The “substantiality,” it noted, is measured by the “effect that the change will have upon” the dominant estate (in this case, the hotel) in light of “policy concerns such as the desire to encourage valuable improvements to servient estates without harming easement holders.” Non-lawyers would call this a balancing of interests between the need to replace surface parking lots with new development and the need to protect the access rights purchased by the Holiday Inn.

Turning to the matter at hand, the court held that the substantiality of a proposed change is generally a question of fact. Accordingly, it held that the trial court erred by deciding the issue in the summary judgment context. The case was remanded back to the trial court (again) for a trial on the issue regarding the substantiality of the proposed change in the access easement.

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