Opinion
5-20-0424
03-25-2022
MATTHEW J. MARLEN, Plaintiff-Appellee, v. HURST INVESTIGATION SERVICES, INC.; PROTECTIVE SERVICES GROUP, INC.; and DURWOOD HURST, Defendants-Appellants.
This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).
Appeal from the Circuit Court of St. Clair County. No. 19-L-634 Honorable Christopher T. Kolker, Judge, presiding.
JUSTICE CATES delivered the judgment of the court. Justices Wharton and Vaughan concurred in the judgment.
ORDER
CATES JUSTICE
¶ 1 Held: The plaintiff waived his right to collect late fees under Lease 1. The late fee provision in Lease 2 is an unenforceable penalty clause. The trial court's finding that the defendants waived their jury demand was not an abuse of discretion.
¶ 2 The plaintiff, Matthew J. Marlen, brought an action against the defendants, Hurst Investigation Services, Inc., Protective Services Group, Inc., and Durwood Hurst, seeking damages under two separate commercial lease agreements. After a bench trial, the trial court awarded damages of $4277 for unpaid rent and utility expenses and $14,541 in late fees under the first lease agreement (Lease 1). The trial court additionally awarded $7198 for unpaid rent and utility expenses and $97,300 in late fees under the second lease agreement (Lease 2). On appeal, the defendants claim that the trial court erred by failing to find that the late fee provisions in the lease agreements were unenforceable and unconscionable, and by failing to find that the defendants were fraudulently induced to sign Lease 2. The defendants further claim that the trial court erred when it ordered a bench trial, and thereafter, denied their motion to enforce their jury demand. For the following reasons, we reverse that portion of the judgment order awarding late fees and affirm the remainder of the judgment as modified.
¶ 3 I. BACKGROUND
¶ 4 The plaintiff owned a commercial building in O'Fallon, Illinois. Defendants, Hurst Investigation Services, Inc., and Protective Services Group, Inc., entered into a commercial lease agreement with the plaintiff on July 15, 2007, (Lease 1) to rent suite 3B, located on the lower level of the building. Defendant, Durwood Hurst (Hurst), was the president of Hurst Investigation Services, Inc., a security guard service, and president of Protective Services Group, Inc., a private detective agency. Hurst agreed to personally guarantee the payment of rent, utility charges, and expenses due pursuant to Lease 1.
¶ 5 After years of tenancy pursuant to Lease 1, the plaintiff requested that the defendants move to a different unit to accommodate a new renter that wanted to rent suite 3A as well as suite 3B. The defendants agreed to move into suite 1 of the building based upon certain alleged representations made by the plaintiff to induce the defendants to move. After the defendants transferred to suite 1 and incurred moving expenses, the plaintiff presented the defendants with a written lease (Lease 2) that set forth substantially different terms from Lease 1. Notably, had the defendants remained in suite 1 for longer than a year under Lease 2, the rent would have doubled from $1500 a month to $3000 per month. Additionally, substantive terms that were contained in Lease 1 were either modified or deleted in Lease 2. As a result of these changes, the defendants vacated suite 1 prior to the expiration date of Lease 2. This litigation ensued.
¶ 6 The plaintiff filed his complaint on September 5, 2019, for unpaid rent, late fees, utility expenses, court costs, and attorney fees as set forth in the two leases. The plaintiff claimed the defendants failed to timely pay rent under each of the two leases and vacated the premises early under Lease 2. Attached to the complaint was Lease 1, dated July 15, 2007, a personal guaranty signed by Hurst for Lease 1, and Lease 2, dated January 18, 2017.
¶ 7 Lease 1 was entered into on July 15, 2007, between the parties. The defendants had agreed to rent suite 3B from the plaintiff for a term of one year. Suite 3B had approximately 1600 square feet of office space. Article III of the lease contained an extension provision that stated:
"The parties to this Agreement may formally extend this Agreement, or renew and extend it for an identical term by the Tenant's continued occupancy of the premises as set forth in Article XVIII, Section II."
Section 2 of Article XVIII stated:
"In the event that Tenant or anyone claiming under Tenant shall continue occupancy of the Leased Premises after the expiration of the term of this Lease or any renewal or extension thereof without any agreement in writing between Landlord and Tenant with respect thereto, such occupancy shall be deemed to renew and extend the term of the Lease for an identical term, upon the covenants, provisions and conditions herein contained. The annual rent shall be equivalent to the annual rent in effect during the prior year this Lease and increased by the federal government's CPI (Consumer Price Index) percentage for the prior year."
¶ 8 Section 13 of Article XX stated:
"Tenant shall furnish concurrently with the execution of this lease, a financial statement of Tenant prepared by an accountant. Tenant, both in corporate capacity, if applicable, and individually, hereby represents and warrants that all the information contained therein is complete, true, and correct. Tenant understands that Landlord is relying upon the accuracy of the information contained therein. Should there be found to exist any inaccuracy within the financial statement which adversely affects Tenant's financial standing, or should Tenant's financial circumstances materially change, Landlord may demand, as additional security, an amount equal to an additional two (2) months' rent, which additional security shall be subject to all terms and conditions herein, require a fully executed guaranty by a third party acceptable to Landlord, elect to terminate this Lease, or hold Tenant personally and individually liable hereunder."
¶ 9 In 2007, the parties to Lease 1 initially agreed to a monthly rent amount of $1250. From the time when Lease 1 was signed until it terminated in 2016, the rent had increased to $1500 a month, or $250 over a period of 10 years. Lease 1 also included a late fee provision that stated, "a monthly late fee in the amount of 10% of any amounts due and unpaid shall be assessed each month if payment is not postmarked or received by Landlord on or before the tenth day of each month and payments have not been received."
¶ 10 Lease 2 began on February 1, 2017, and terminated one year later, on February 1, 2018. Lease 2 was the agreement for occupancy of suite 1, which had approximately 2000 square feet of office space. Lease 2 stated that, "in the event that the Tenant holds over after the expiration of this Lease (2/1/18), rent shall double to $3000 per month." Article III of the lease regarding the extension of the lease stated, "deleted." Article XVIII stated "deleted." Section 13 of Article XX regarding reliance on financial statement also stated, "deleted."
¶ 11 The monthly rent payment for one year was $1500 a month under Lease 2. This lease contained a late fee provision, which stated that "a late fee of $20 per day will be assessed for each and every payment that is not timely made."
¶ 12 On September 19, 2019, Hurst was served with the summons and complaint. Hurst was served individually and on behalf of his two companies. On November 19, 2019, Jill Sundberg, an attorney for the defendants, entered her appearance and requested a jury trial. Sundberg also filed an answer, affirmative defenses, and a counterclaim for the defendants. On November 20, 2019, Sundberg again filed the same answer, affirmative defenses, and counterclaim, along with separate entries of appearance for each of the defendants. The trial court processed payment for the defendants' appearance fee and jury demand on November 22, 2019.
¶ 13 On December 2, 2019, the plaintiff filed a motion to dismiss the defendants' counterclaim and a motion to strike the defendants' affirmative defenses. The plaintiff set both motions for hearing on January 15, 2020.
¶ 14 On December 9, 2019, the court held a case management conference. Sundberg did not appear as she was out of the state on another matter. At that time, a mandatory case management conference was set for October 29, 2020. The order also contained a handwritten entry that stated a "Bench trial" was set for November 2, 2020.
¶ 15 On January 8, 2020, attorney David Duree entered his appearance for the defendants. That same day, Duree also filed a jury demand that stated the jury demand fee had previously been paid. Sundberg did not withdraw her appearance.
¶ 16 On January 15, 2020, the date previously set by plaintiff for a hearing on his motions, an order was entered granting defendants' oral request for leave to file an amended answer, affirmative defenses, and amended counterclaim. The record does not contain a file stamped copy of the defendant's answer, affirmative defenses, and amended counterclaim. There is no record of the proceedings from that date and no bystander's report on file. Nevertheless, on February 21, 2020, the plaintiff filed an answer to defendants' counterclaims and filed a reply to the defendants' affirmative defenses.
On November 9, 2020, the defendants filed a motion to enforce their jury demand and attached a copy of their first amended answer to the complaint and counterclaims purportedly filed January 16, 2020.
¶ 17 On September 18, 2020, the court entered an order setting the case for hearing on October 29, 2020, via Zoom videoconferencing. The order stated that the parties were encouraged to discuss a case management order and that any pending motions could be heard at that time, if noticed by a party. During the October 29, 2020, hearing, Duree indicated to the court that he believed the setting was for a status conference. Duree asked the trial court if the case was set for a bench trial. The court confirmed that it was set for a bench trial on November 2, 2020. Duree did not object or inform the court that a jury trial had been demanded.
¶ 18 On November 2, 2020, the parties appeared before the court for a bench trial. Hurst testified first as an adverse witness. He stated that the defendants agreed to transfer suites at the plaintiff's request as a favor to the plaintiff. The tenant in suite 3A had vacated, and the plaintiff wanted to rent both the upstairs unit (3A) and the defendants' downstairs unit (3B) to the plaintiff's friend, a bankruptcy attorney. The plaintiff offered to allow the defendants to move from suite 3B into suite 1 and provide a rent credit for a couple of months. According to Hurst, Lease 1 was amended to expire on November 30, 2016. Lease 2 began on February 1, 2017. Hurst testified that the plaintiff orally agreed to keep the lease agreements the same and there would be no increase in the price of rent. The plaintiff also sent an email to Hurst on November 25, 2016, that stated "we need to sign a new lease for Unit 1. I'll work on it next week but will be similar in format and content to the old one."
¶ 19 Hurst testified that the defendants spent approximately $11,000 to move from suite 3B to suite 1. Hurst stated in an email to the plaintiff that the cost to move from suite 3B to suite 1 was $5000. Hurst further explained that the $5000 figure was only the moving cost. The defendants also incurred expenses to rewire for cameras, phones, and computer systems, as suite 1 had only been wired for lighting. The defendants had to hire a company to transfer their camera system from suite 3B to suite 1. Hurst explained that part of the defendants' business was to count money from slot machines. Cameras were required to be mounted in a secure room designed to count the money. A camera was mounted outside of the room and positioned to record everyone entering and exiting the counting room. Cameras were also installed on the exterior of the building. Only one of the exterior cameras was moved and reinstalled near the front door of suite 1. Two additional exterior cameras outside of suite 3B were left in place. Therefore, the total cost of the move, according to Hurst, was approximately $11,000. The defendants also lost income because they could not operate their businesses during the move. No estimate was given, however, for the amount of that loss.
¶ 20 Hurst testified that the additional space in the new suite provided no benefit to the defendants. The layout of suite 1 included a spare stairway and a restroom which were not needed for their business. Hurst stated that all of his office furniture would not fit into the new unit. He believed the two suites were similar in size.
¶ 21 Hurst further explained that plaintiff provided Hurst with Lease 2 a couple of months after the defendants had moved in and occupied suite 1. Lease 2 was not the same as Lease 1. Rent doubled if the defendants remained in the suite after the first year of occupancy. According to Hurst, the plaintiff never informed the defendants that the rent would double to $3000 a month after the first year in suite 1. Hurst did not agree to the increase in rent. Hurst testified that he relied on the plaintiff's oral statement that the lease would remain the same, as well as the email that said the terms of the lease "will be similar in format and content to the old one." Hurst also testified that he would not have moved units if he had been made aware that the rent for Lease 2 would double after the first year.
¶ 22 Hurst testified that when he was presented with Lease 2 in January 2017, he told the plaintiff that the defendants could not afford the unit if the rent doubled. Hurst informed the plaintiff at that time that the defendants would have to look for a new place to rent, and they started searching for a new location. Hurst explained that he signed Lease 2 because he believed he had to sign the amended lease after they had expended money moving into suite 1.
¶ 23 Hurst also testified that the defendants had fallen behind on rent in 2015 after their bookkeeper embezzled funds. The defendants continued to periodically fall behind in rent during the time that they occupied suite 3B, and they fell behind in rent when they occupied suite 1. Hurst stated that he was not aware of the late fee provisions in either lease when he signed Lease 2. The plaintiff had never charged late fees while either suite was occupied by the defendants.
¶ 24 Hurst further claimed that he believed that the plaintiff had accepted the offer of leaving the camera system outside suite 3B in exchange for rent due. A prior tenant of the plaintiff's had left office furnishings in exchange for past rent owed. Hurst believed that he could do the same.
¶ 25 Hurst also explained that the camera system he left behind when he vacated suite 1 included a 40-day recorder that allowed for 16 cameras to connect to the system and a monitor. When Hurst moved out of suite 1, the camera system was left on a table inside the suite and cameras remained mounted to the building. Hurst would not have left the camera system if the plaintiff would have responded that he did not want the camera system and if the plaintiff had not told Hurst that they would be arrested if they returned to the property. When asked about any demands for payments due, Hurst indicated that the plaintiff had not made a demand for payment for the two years following the defendants' departure from suite 1. The first notice the defendants had of any demands for monies due was when the defendants were served with this litigation.
¶ 26 The plaintiff then testified and began his testimony by stating that $4277.94 remained due under Lease 1. The trial court then stopped the plaintiff's testimony and inquired of the defendants whether they disputed the amounts listed in the plaintiff's exhibits. Duree responded that he did not concede the amount due as set forth in the plaintiff's exhibits. Duree also stated that no evidence would be presented to dispute the amounts identified in the exhibits, other than Hurst's testimony. At that time, Duree offered the defendants' exhibits into evidence and the plaintiff did not object. The court admitted the plaintiff's exhibits and the defendants' exhibits into evidence without further testimony related to the exhibits.
¶ 27 In order to more fully understand the nature of this dispute, and the judgment entered by the trial court, we turn briefly to an examination of the various exhibits. The plaintiff offered exhibits 5 and 6 to show the rent and utility charges incurred under each lease. Exhibit 5, the ledger for Lease 1, identified all of the rent payments made by the defendants, as well as those that were not paid. This exhibit also contained the expenses, such as utilities, that had been paid, and those that were owing. The exhibit did not contain any rental credits and showed an expiration date of November 30, 2016.
¶ 28 According to exhibit 6, the ledger for Lease 2, the plaintiff provided "free rent from 12/1/16-1/30/17." Lease 2 began on February 1, 2017, and rent due was $1500 per month for one year.
¶ 29 Plaintiff's exhibit 9 summarized the unpaid rent and late fee calculations for Lease 1 and Lease 2. Under Lease 1, the plaintiff charged 10% of the total amount of rent he claimed was due, $4277, for each month from December 1, 2017, through November 1, 2020. The total amount of late fees claimed was $14,541, calculated as $427 (10% of $4277) a month for 34 months. Under Lease 2, the plaintiff claimed that the defendants missed five rent payments during the term of Lease 2. The defendants were charged $20 a day for each of the five missed payments from January 1, 2018, until September 1, 2020. Five missed payments at $20 a day, for 973 days, amounted to $97,300 in accumulated late fees.
No explanation was offered as to why the late fee calculation for Lease 1 ended November 1, 2020, and the late fee calculation for Lease 2 was September 1, 2020. The bench trial was held on November 2, 2020.
¶ 30 The defendants' exhibits, admitted into evidence simultaneously with the admission of the plaintiff's exhibits, also included a ledger they had received from the plaintiff. The defendants' exhibit G was an email from the plaintiff dated April 25, 2017, with an attached ledger dated April 13, 2017. The email stated that "3 months of free rent was credited to you in the form of a $4500 rent credit." The April 13, 2017, version of the plaintiff's ledger did not separate amounts due under Lease 1 from those amounts claimed pursuant to Lease 2. According to this ledger, a $4500 credit was applied on December 1, 2016, "for switching units." The April 2017 ledger stated that $6527.94 was due under both leases. Late fees were not included.
¶ 31 The defendants also provided a letter, exhibit F, dated April 30, 2017, where they claimed the total amount due under both leases as of April 30, 2017, was $4500, after making a $2027.94 payment in April. Receipts for May, June, July, August, and October, 2017, were included with exhibit F.
¶ 32 A series of emails between Hurst and the plaintiff were also admitted as the defendants' group exhibit H. Hurst emailed the plaintiff on September 18, 2017, and requested that Lease 2, which ended on February 1, 2018, terminate early. In response, on September 19, 2017, the plaintiff emailed Hurst and declined to terminate Lease 2 early unless a new tenant was found. The plaintiff reminded Hurst that three months of free rent was provided as an incentive to move. The plaintiff sent an additional email on September 26, 2017, that informed Hurst that prior renters paid $2000 to $2500 a month for the unit. The plaintiff additionally informed Hurst that he should not remove any wires, fixtures, cameras, or anything mounted to the building. The plaintiff offered to pay for the cameras.
¶ 33 Also included in defendants' exhibit H was an email dated October 13, 2017, where Hurst had emailed the plaintiff a request for the amount due under Lease 2. Hurst sent a follow-up email on October 23, 2017, for the accounting. On November 8, 2017, the plaintiff emailed Hurst that he was aware that the defendants had signed a lease for a building in Belleville, Illinois. The email appeared to have a rent itemization attachment, but the attachment was not included with the group exhibit H in the record.
¶ 34 Exhibit H also included an email dated December 10, 2017, where the plaintiff stated that the defendants had vacated without informing him and the plaintiff intended to change the locks. Hurst's email response, dated December 11, 2017, stated that the defendants did not want to move, but they had no choice because the rent had doubled. They had returned the keys and stopped their utility service. Hurst's email additionally included that he had paid $6900 for the camera system along with a DVD recorder and monitor. Hurst stated, "you can have them for the rent due, if not I will remove them." On December 17, 2017, the plaintiff emailed Hurst and stated that it was never the plaintiff's intention to double the rent. The plaintiff additionally stated that the cameras were now his property and that the police would be called if Hurst or anyone affiliated with him entered the property.
¶ 35 After all of the exhibits were entered into evidence, the plaintiff continued with his testimony regarding the circumstances that gave rise to the move from suite 3B to suite 1. The plaintiff agreed that he wanted to rent units 3A and 3B to his friend, a bankruptcy lawyer. The plaintiff wanted Hurst to vacate suite 3B and requested that the defendants vacate. Hurst agreed to accommodate the plaintiff's request, and an amendment was made to Lease 1 allowing for early termination of the lease. The amendment was signed and dated by the plaintiff on September 9, 2016. By this amendment, Lease 1 was scheduled to terminate on November 30, 2016.
¶ 36 The plaintiff testified that this dispute involved a commercial lease between two sophisticated parties. The plaintiff clarified that he never stated that Lease 1 would be "identical" to Lease 2. The plaintiff explained that the units were different, as suite 3B was 1600 square feet and suite 1 was 2000 square feet. Suite 1 had a small bathroom and a stairwell.
¶ 37 The plaintiff admitted that on November 25, 2016, prior to the expiration of the amended Lease 1, he had emailed Hurst that the new lease would be "similar in format and content to the old one." The plaintiff also admitted that he never told Hurst that the rent would increase to $3000 a month after the first year. It was not his intention to lose the defendants as tenants, however, the $1500 a month was not a permanent solution for suite 1. The plaintiff acknowledged that the defendants had problems paying their rent on time under Lease 1.
¶ 38 The plaintiff was also asked if the defendants would have moved if they were aware that the terms in Lease 2 would change to a $20 per day late fee provision and if the rent would double. The plaintiff claimed that he did not decide to change the lease terms at the time he first approached Hurst in September 2016. The plaintiff then stated, "It was a one-year lease. If he didn't like it, he could have left. He could leave." The plaintiff was asked if he persuaded the defendants to move to suite 1 before they were presented with the terms of the new lease. The plaintiff responded that Hurst was concerned about rent increasing if they agreed to move. When asked again if Hurst would have agreed to move to suite 1 if he had would have known that the rent for the second year in that unit would double to $3000 a month, the plaintiff stated, "I never expected [Hurst] to pay three thousand a month."
¶ 39 The trial court asked if the rent at $3000 a month was in dispute. The defendants' counsel, Duree, responded that the terms for Lease 2 were represented to Hurst to be the same. The trial court questioned whether the plaintiff was Hurst's attorney or if allegations were alleged based on coercion or force. Duree argued that Hurst would have remained in unit 3B if the plaintiff would have informed Hurst that the rent would double, and Hurst would have never signed a new lease. The trial court then stated that Hurst did sign the January 2017 lease. Duree argued that Hurst's companies had already moved and incurred expenses before receiving the second written lease. The trial court then asked Duree to move on to the next topic.
¶ 40 The plaintiff then testified regarding his efforts to have Hurst catch-up on rent. In April 2017, the plaintiff had emailed Hurst an accounting of amounts due and said, "do you mind catching up on the rent over the next several months." The plaintiff testified that in September 2017, he had a phone conversation with Hurst and asked again that Hurst catch-up on rent before moving. The plaintiff claimed that over the years, he did not like to "stick it" to tenants. The plaintiff further explained that he would not charge late fees if the tenant caught up on their rent. When they vacate; however, if the tenants owe rent when they move, the plaintiff "reserve[d] the right to charge those [late fees] retroactively." He stated, "it's kind of a nice carrot to dangle in front of tenants to make sure that they pay." The plaintiff additionally testified that "even though that first lease was up a year ago, a year before that, I didn't charge any late fees until literally they vacated the premises."
The plaintiff, here, referring to the defendants having vacated suite 1.
¶ 41 The plaintiff also testified about the cameras installed by Hurst. The plaintiff claimed that after Hurst moved from suite 3B to suite 1, he noticed there was a hole drilled into the brick on the exterior of the building. The plaintiff wanted the exterior cameras to remain on the premises because he was concerned that if the cameras were removed, there would be damage to the brickwork. He had no need for the camera equipment. The plaintiff agreed that he had emailed Hurst on September 26, 2017, stating that the plaintiff would pay for the cameras even though he acknowledged that the cameras were fixtures. The plaintiff acknowledged that Hurst emailed him on December 11, 2017, and offered the cameras in suite 1 in exchange for rent due or the cameras would be removed. The plaintiff indicated that he had responded to Hurst's email that the cameras were a fixture on the property and if Hurst entered the property, he would call the police and would have instructed his other tenants to call the police. The plaintiff agreed that he had changed his position on compensating the defendants for their cameras after the defendants had vacated suite 1. The plaintiff also agreed that he did not send any further demand to the defendants for rent due after December 2017.
¶ 42 At the close of Duree's questioning of the plaintiff, Duree brought to the trial court's attention that the defendants had filed a jury demand. The trial court stated that it was too late to raise the issue of filing a jury demand. The trial court asked if the jury fee was paid. The plaintiff stated that the jury fee was not timely paid, and the defendants were in default. The trial court found that Hurst had waived the jury trial. The trial court then requested that the parties submit proposed orders.
¶ 43 On November 9, 2020, the defendants filed a verified motion to enforce their jury demand along with a notice that the motion was filed in lieu of proposed findings of fact and conclusions of law. Defendants argued that they had made several requests for a jury trial. Sundberg had included a jury demand with her entry of appearance and included a jury trial demand along with an answer and counterclaim. The docket entry on November 22, 2019, acknowledged that a jury fee for a 12-person jury was received by the trial court. Duree also attached his jury demand that was filed January 8, 2020, and the order granting leave to file an amended answer and counterclaim. Duree argued that his amended answer and counterclaim, filed January 16, 2020, also demanded a trial by jury. Duree additionally attached the case management order dated December 9, 2019, that scheduled a bench trial for November 2020. Duree had asked the trial court during the pretrial conference on October 29, 2020, whether the case was set for a bench trial or jury trial and was advised it was a bench trial. Duree argued that the jury demand was timely made, and the fee was timely paid. The parties had not submitted their proposed findings of fact and conclusions of law when the motion to enforce the jury demand was filed.
¶ 44 On November 10, 2020, the trial court entered an order denying the motion to enforce the jury demand. The trial court found that the parties had appeared at a pretrial conference, that the defendants were advised that the matter was proceeding to a bench trial, and that no objection was made at that time. The trial court additionally noted that the defendants stated that a jury demand was made after the witnesses had been sworn and testified, and evidence was admitted into the record. The trial court found that the defendants had waived their jury trial demand.
¶ 45 On November 20, 2020, the trial court entered its judgment. The trial court found that the parties had entered into two valid commercial leases dated July 15, 2007, and January 18, 2017. The court additionally found that the plaintiff was entitled to collect late fees under both leases as the late fee provisions in both leases were valid and enforceable. Under Lease 1, the defendants owed $14,541 in late fees and $4277 in rent and utilities. No credit was given for the moving expenses incurred by the defendants or for any equipment left behind. Under Lease 2, the defendants owed $97,300 in late fees and $7198 in rent and utilities. No credit was given for the camera systems left behind by the defendants.
¶ 46 The court also considered the defendants' counterclaims. The court noted that the parties contemplated an amended counterclaim, but no pleading was found in the record. Nevertheless, the court considered the claim that the plaintiff failed to provide a notice of default. The court found that the plaintiff made multiple demands on the defendants and provided them with opportunities to cure their default. The defendants also claimed that the plaintiff failed to contest liability through arbitration. The court found that the lease did not require arbitration for late fees. The defendants next claimed that the plaintiff failed to reimburse the defendants for converting property left at the premises when the defendants vacated. The court found that the computer and camera systems were abandoned and that the cameras were "more of a useless eyesore than property that was used, or converted, by Plaintiff."
¶ 47 The trial court considered affirmative defenses raised by the defendants and found that the evidence presented did not rise to the level of invalidating either lease or the defendants' liability under either lease. The trial court stated that the defendants had claimed "some nefarious scheme for Plaintiff to double the rent. But the rent amounts were clearly outlined in the leases." The defendants had also claimed various expenses when they agreed to move suites, but the trial court found there was no evidence that the moving expenses and rewiring costs should have been covered by the plaintiff. The trial court also found that Hurst had admitted that there was no agreement to exchange camera equipment for back rent due.
¶ 48 On December 22, 2020, the defendants filed a motion for extension of time to file a notice of appeal. The defendants asserted that they did not receive a copy of the judgment prior to December 22, 2020. On January 6, 2021, leave to file a late notice of appeal was granted. On January 6, 2021, the defendants filed their notice of appeal.
¶ 49 II. ANALYSIS
¶ 50 The defendants claim that the trial court erred by awarding late fees of $111,841 for alleged unpaid rent of $11,475 based on unenforceable and unconscionable late fee provisions contained in the leases. The defendants also claim that the trial court erred by failing to find that the defendants were fraudulently induced to sign Lease 2. The defendants additionally appeal the trial court's order scheduling a bench trial and the denial of their motion to enforce their jury demand.
¶ 51 A. Late Fees
¶ 52 We first address the trial court's finding that the late fee provisions in both Lease 1 and Lease 2 were valid and enforceable. The construction and legal effect of a lease are questions of law, which are reviewed de novo. Crystal Lake Ltd. Partnership v. Baird & Warner Residential Sales, Inc, 2018 IL App (2d) 170714, ¶ 73.
¶ 53 The trial court's award was based on two separate lease agreements. Each late fee provision must be evaluated by its own facts and circumstances. Grossinger Motorcorp, Inc. v. American National Bank & Trust Co., 240 Ill.App.3d 737, 749 (1992). We consider the legal effect of the provisions in Lease 1 and Lease 2 separately.
¶ 54 1. Lease 1
¶ 55 Lease 1 contained a late fee provision that stated, "a monthly late fee in the amount of 10% of any amounts due and unpaid shall be assessed each month if payment is not postmarked or received by Landlord on or before the tenth day of each month and payments have not been received." The plaintiff's exhibit 9 showed that defendants owed $4277 at the expiration of Lease 1. For the time frame of December 1, 2017, through November 1, 2020, the plaintiff sought a monthly late fee of 10% of the delinquent rent amount due of $4277, for a total amount of $14,541. The trial court awarded these amounts under Lease 1.
¶ 56 The defendants asserted as an affirmative defense that the plaintiff waived his right to collect late fees by his conduct over a period of more than 10 years when the defendants fell behind in rent and no late fee was assessed. In addition to waiver, the defendants claimed the late fee provision was unenforceable. "The determination as to what facts are sufficient to constitute waiver is a question of law." Whalen v. K-Mart Corp., 166 Ill.App.3d 339, 343 (1988).
¶ 57 Waiver is the express or implied voluntary and intentional relinquishment of a known and existing right. Wolfram Partnership, Ltd. v. LaSalle National Bank, 328 Ill.App.3d 207, 223 (2001). "An analysis of whether there was in fact a waiver of contractual provisions focuses on the intent of the non-breaching party. If he has intentionally relinquished a known right, either expressly or by conduct inconsistent with an intent to enforce that right, he has waived it and may not thereafter seek judicial enforcement." Whalen, 166 Ill.App.3d at 343. Implied waiver has been stated to arise where "(1) an unexpressed intention to waive can be clearly inferred from the circumstances or (2) the conduct of the waiving party has misled the other party into a reasonable belief that a waiver has occurred." Board of Library Trustees of Village of Midlothian v. Board of Library Trustees of Posen Public Library District, 2015 IL App (1st) 130672, ¶ 41.
¶ 58 We consider whether the plaintiff's past failure to impose late fees was an intentional waiver or constituted conduct that misled the defendants into a reasonable belief that late fees were waived under Lease 1. The defendants had been late on rental payments on several occasions over the 10-year rental period under Lease 1. In September 2016, the defendants agreed to terminate their lease as a favor to the plaintiff and transfer to suite 1. In November 2016, even though the defendants owed rent under Lease 1, the plaintiff did not request late fees after the lease was terminated and the defendants moved to suite 1. When Lease 2 was signed in January 2017, the plaintiff did not request payment of late fees that were due and owing under the terms of Lease 1. In April 2017, several months after the defendants no longer occupied 3B, the plaintiff provided an accounting that combined the amounts owed by the defendants under Lease 1 and Lease 2. This accounting did not include a request for late fees. The plaintiff sought damages based on late fees starting the year after Lease 1 was terminated, for the time period of December 1, 2017, through November 1, 2020. The start date coincided with the date the defendants presumably vacated suite 1.
¶ 59 "A party to a contract may not lull another into a false assurance that strict compliance with a contractual duty will not be required and then sue for noncompliance." Whalen, 166 Ill.App.3d at 343. The plaintiff admitted that he never charged late fees while the defendants occupied suite 3B. The plaintiff only sued for noncompliance of the late fee term three years after Lease 1 was terminated. Historically, the plaintiff landlord had waived late fees over the course of a decade under Lease 1. No request for late fees was made by the plaintiff prior to executing Lease 2, even though the plaintiff claims that the defendants were in arrears on their rent under Lease 1 at the time they executed Lease 2. Under these circumstances, it is unreasonable for a tenant to assume, after executing Lease 2, that the plaintiff would seek late fees pursuant to Lease 1 simply because the plaintiff and the defendants had a dispute that arose under Lease 2. Indeed, had the defendants continued to occupy suite 1 at a rent of $3000 per month, it is unlikely that the plaintiff would have ever demanded late fees under Lease 1. Indeed, the plaintiff testified that late fees were not charged during the time that the defendants occupied the premises because he did not like to "stick it" to tenants. Therefore, we find that the plaintiff landlord waived his right to collect the late fees pursuant to the terms of Lease 1 and reverse that portion of the trial court's judgment awarding late fees under Lease 1. The defendants have not disputed the amounts of rent and expenses due under Lease 1, and, therefore, the trial court's award of $4277 is affirmed.
¶ 60 2. Lease 2
¶ 61 We next consider whether the late fee provision under Lease 2 was enforceable. The trial court awarded damages in the amount of $7198 for rent and utilities and awarded $97,300 in late fees. Lease 2 stated, "a late fee of $20 per day will be assessed for each and every payment that is not timely made." The plaintiff's exhibit 9 included calculations based on five months of missed payments under Lease 2. Five missed payments at $20 a day for 973 days (5 x $20 x 973) amounted to $97,300 in late fees.
¶ 62 The determination of whether a contract contains a valid damages provision, or an unenforceable penalty clause, is a question of law. Grossinger Motorcorp, Inc., 240 Ill.App.3d at 749. Accordingly, we apply a de novo standard of review. Hidden Grove Condominium Ass'n v. Crooks, 318 Ill.App.3d 945, 947 (2001).
¶ 63 Where damages are based on a breach of a lease agreement, the plaintiff is entitled to recover damages to the extent of his injury. Stride v. 120 West Madison Building Corp., 132 Ill.App.3d 601, 605 (1985). A lease provision may provide that a late charge can be assessed when rent is not paid on or within a given number of days from the due date. Collins v. Hurst, 316 Ill.App.3d 171, 174 (2000). A lease may also provide that interest is due on unpaid rent. Collins, 316 Ill.App.3d at 174. A reasonable late charge provision in a lease should be enforced. Collins, 316 Ill.App.3d at 174. Penalty clauses, however, are not enforceable lease provisions. GK Development, Inc. v. Iowa Malls Financing Corp., 2013 IL App (1st) 112802, ¶ 47.
¶ 64 Lease clauses that fix damages will not be upheld if their purpose is merely to secure performance of the agreement. Hidden Grove Condominium Ass'n, 318 Ill.App.3d at 947. "An agreement setting damages in advance of a breach is an unenforceable penalty unless: (1) the amount so fixed is a reasonable forecast of just compensation of the harm that is caused by the breach; and (2) the harm caused is difficult or impossible to estimate." Hidden Grove Condominium Ass'n, 318 Ill.App.3d at 947.
¶ 65 In Hidden Grove Condominium Ass 'n, a late charge of $25 per month was reasonable based on an estimate of administrative costs in pursuing the late charge as well as lost income on the assessment fee. Hidden Grove Condominium Ass'n, 318 Ill.App.3d at 947. Here, the plaintiff provided no testimony regarding the basis of the late fee charges in relation to the damages he incurred by the defendants' failure to pay rent timely. The plaintiff further explained that if tenants vacated the premises with a debt owed, he would then enforce the late fee provisions retroactively. Simply put, the plaintiff used the late fee provision to penalize the defendants that vacated the premises when money was owed. The imposition of the late fees was not related to the harm suffered by the plaintiff but was used to enforce payment of back rent.
¶ 66 "The unreasonable nature of the sum provided is sufficient grounds for finding that the sum was intended to be a penalty." Hidden Grove Condominium Ass'n, 318 Ill.App.3d at 947. In Hidden Grove Condominium Ass'n, the additional $25 per month for each month the assessment fee went unpaid was found to be a cumulative late charge and unreasonable. Hidden Grove Condominium Ass'n, 318 Ill.App.3d at 947.
¶ 67 In this case, a daily fee of $100 was charged over a period of 973 days. The plaintiff was awarded approximately $3000 a month in late fees for the two years following the expiration of Lease 2, even though the amount of the delinquent monthly rent under Lease 2 was $1500 per month. The late fee award doubled the monthly rent due under Lease 2. The plaintiff also testified that he would typically rent suite 1 for $2000-$2500 a month. The late fees awarded exceeded the plaintiff's own estimation of the fair market value of his property's rental value by $500-$1000 a month. The unreasonable sum of $97,300 for five delinquent payments is sufficient to determine that the late fee provision in Lease 2 was a penalty provision, rather than a sum reasonably related to the damages suffered by the plaintiff. Under these circumstances, the late fee provision under Lease 2 was an unenforceable penalty. We, therefore, reverse the judgment of the trial court awarding $97,300 in late fees.
¶ 68 The defendants did not take issue with the amount of the award that calculated past rent due under Lease 2, as awarded by the trial court in the amount of $7198. There is some discrepancy in the testimony regarding the amount of credit that the plaintiff agreed to grant to the defendants. Likewise, there is conflicting testimony regarding any agreement between the parties to pay for the camera equipment left behind when the defendants vacated suite 1. For these issues, the trial court heard the testimony of the witnesses and examined the exhibits admitted into evidence. We find that the trial court resolved these conflicts accordingly and affirm the award of the amount of rent and expenses due under the terms of Lease 2.
¶ 69 The defendants additionally raised an argument that Lease 2 was unenforceable, claiming they were fraudulently induced to move from suite 3B to suite 1 by plaintiff's representations that Lease 2 would be similar in content. The substantial differences between the terms in Lease 1 and Lease 2 were the late fee provisions and the holdover provisions. The late fee provision under Lease 1 was waived by the plaintiff's conduct. We have found the late fee clause under Lease 2 was unenforceable. Because the defendants vacated the premises prior to the expiration of Lease 2, the holdover provision is not an issue. The defendants have admitted that past rent was owed, as awarded. Thus, there is no need to address the defendants' argument that they were fraudulently induced to move suites.
¶ 70 Additionally, the defendants have raised, for the first time on appeal, the issue of unconscionability. We need not consider the defendants' unconscionability argument as the lease provisions at issue have been resolved.
¶ 71 B. Jury Demand
¶ 72 The defendants raise two issues related to the trial court's decision denying their jury demand request. The defendants first argue that the trial court erred in ordering a non-jury trial when a jury demand had been made, and the jury fee was paid. Second, the defendants claim the trial court erred by denying the defendant's motion to enforce their jury demand. The standard of review is whether the trial court abused its discretion in denying the defendant's demand for a jury trial. Williams v. National Super Markets, Inc., 143 Ill.App.3d 110, 111 (1986).
¶ 73 A party may waive their right to a trial by jury by proceeding to trial before the court without objection. La Salle National Bank v. International Ltd., 129 Ill.App.2d 381, 398 (1970). During the December 9, 2019, status conference the court's scheduling order set the matter for a bench trial when the defendants had filed a jury demand. Counsel for the defendants was not present at the status conference. No objection was raised to the bench trial setting, even after Duree asked the trial court on October 29, 2020, whether the case had been scheduled for a bench trial. In fact, the defendants raised no objection to the trial court proceeding with the matter as a bench trial until after the witnesses had testified and the exhibits had been admitted into evidence. To ask for a jury trial after the close of the evidence would give the defendants a "second bite at the apple," and would be unfair to the plaintiff.
¶ 74 While it is unclear from the record why the trial was changed from a jury trial to a bench trial, the defendants have not claimed that they were unaware of this change. Clearly, their counsel should have known of the trial court's order dated December 9, 2019. No objection was made to that order. Thereafter, the defendants proceeded with the bench trial before filing a motion to enforce their jury demand. This motion was too late, as they waived their right to a jury trial by fully participating in the bench trial. Therefore, the trial court did not abuse its discretion by finding that the defendants had waived their right to a jury trial. Further, the trial court did not abuse its discretion by denying the defendants' motion to enforce their jury demand.
¶ 75 III. CONCLUSION
¶ 76 For the foregoing reasons, we affirm that portion of the circuit court's judgment that awarded the plaintiff $4277 under Lease 1 and $7198 under Lease 2 as the amounts past due for rent and utilities, along with court costs awarded in favor of the plaintiff. We reverse those portions of the trial court's judgment that awarded the plaintiff late fees in the amounts of $14,541 under Lease 1 and $97,300 under Lease 2. The circuit court's judgment in favor of Matthew Marlen and against Hurst Investigation Services, Inc., Protective Services Group, Inc., and Durwood Hurst is hereby modified to $11,475 plus the court costs. We additionally affirm the trial court's decision to deny the defendants' motion to enforce their jury demand where the defendants had waived their right to a jury trial.
¶ 77 Affirmed as modified.