CHARLES ROBBINS v. STATE OF ILLINOIS (2015)

OPINION

This claim arises out of a lease agreement and involves the collection of Common Area Maintenance (“CAM”) costs provided for within the lease. Claimant, Charles E. Robbins (“Robbins”), seeks to recover damages from the Respondent, State of Illinois (“State”), after the State failed to pay its share of CAM costs as set forth in the parties' lease agreement (“Lease Agreement”).

FACTUAL BACKGROUND

Claimant, Charles E. Robbins, owns and leases commercial office space throughout the State of Illinois. One such property is a building known as Jefferson Terrace, located at 330 West Jefferson Street, Springfield, Illinois. Robbins entered into a five-year Lease Agreement with the Illinois Secretary of State Securities Department (“S.O.S.”) on September 1, 2004, that terminated on November 30, 2009. The Lease Agreement provided that S.O.S. would occupy 9,975 square feet of office space within Jefferson Terrace, which constitutes 17% of the entire 59,189 square-foot building and 46% of the 21.669 square-foot third floor. The rental amount totaled $958,169.79 over the entire term of the Lease Agreement, payable in monthly installments.

The Lease Agreement included a provision that CAM costs could also be included in the monthly rental amount. Article IV, Section A (Rent Allocation Schedule) of the Lease Agreement provides that “CAM includes common area utilities, HVAC maintenance, and standard CAM costs.” Article IV, Section B defines what constitutes CAM costs. It provides:

For the purposes of this lease, all costs and expenses paid or incurred by Lessor during the lease term in operating, managing, equipping, pricing, protecting, insuring, lighting, repairing, replacing, and maintaining the common areas, signs and other facilities on the premises shall constitute a definition of “Common area Maintenance Costs”. Such costs and expenses shall include but shall not be limited to cleaning, fire protection, snow and ice removal, water and sewage charges, premiums for liability, property damage, fire, extended coverage and other insurance costs and expenses of supplies and the like…

However, CAM costs do not include any costs associated with capital improvements. In the event that capital improvements reduce CAM costs, Lessor may reasonably amortize the cost of such improvements. Furthermore, Article VTI1 of the Lease Agreement provides the terms regarding maintenance of the premises. Section A provides:

Lessor shall be responsible for repairs, replacements and maintenance to the interior of the premises, except repairs to the tenant's personal property and unless damage is caused by Lessor or his agents and employees… Maintenance to the premises shall also include replacement of light bulbs and light fixtures, and be charged to Lessee as part of the CAM charges.

Immediately following is Section B, which reads:

Lessor shall be responsible for repairs, replacements, and maintenance to the exterior portion of the building, including the heating and air conditioning systems and the roof…

In July of 2006, Robbins submitted a CAM bill to S.O.S. for the time period between July 2005 and June 2006. Through a Departmental Report dated January 19, 2007, S.O.S. denied payment of such CAM fees asserted by Robbins. S.O.S. claimed that the fees were improperly calculated and therefore only paid $52,468.56 of the $85,494.86 claimed by Robbins. On March 29, 2007, Robbins filed a lapsed appropriation complaint against the State seeking to recover $33,026.30, the unpaid claimed balance of the CAM costs. The State filed a Motion for Summary Judgment that was denied by this Court on January 28, 2009. After further correspondence between the parties, Robbins filed a Motion for Summary Judgment on March 8, 2011, arguing that the State was liable for 17% of the CAM assessment for the building and 46% of the third floor. The State responded that it was only liable for $3,361.00 of the CAM costs because the remaining $29,665.30 was “related to parts of the building for which [the State] is not responsible.” On February 24, 2012, this Court granted Claimant's Motion for Summary Judgment in part in the amount of $3,361.00. Robbins seeks the remaining $29,665.30 in unpaid CAM costs plus 1.0% interest under the Prompt Payment Act.

Robbins first asserts that the State is liable for CAM charges associated with HVAC work performed at Jefferson Terrace. It is contended that the second floor main lobby entrance and elevators are common areas thereby making the State liable for HVAC maintenance on the second floor. Johnson Controls (“Johnson”) and Airmasters performed maintenance on the HVAC on the following occasions:

A. Johnson Controls (“Johnson”) replaced hot water boilers on the first and third floors on July 21, 2005, at a cost of $15,330.00 ($7,665.00 each).

B. Following the installation of the new boilers, Robbins paid $200.00 for the State of Illinois Office of Fire Marshall to conduct an inspection.

C. Johnson added oil to the second floor compressor on August 4, 2005, at a cost of $448.55.

D. Johnson performed maintenance on a second floor boiler that wasn't working on August 31, 2005, at a cost of $778.50.

E. Johnson replaced the third floor condensing unit on November 11, 2005, at a cost of $13,601.00.

F. Johnson replaced the AHU contractor 75 AMP and 60 AMP for the compressors on the second floor on November 21, 2005, at a cost of $ 1,183.20.

G. Johnson performed maintenance on the second floor AHU that was noisy on January 4, 2006, at a cost of $1,008.60.

H. Johnson replaced the refrigerant on the second floor unit on March 3, 2006, at a cost of $1,205.27.

I. Johnson replaced two condensing units on the third floor on April 26, 2006, at a cost of $28,253.00.

J. Johnson performed maintenance on the second floor unit on May 17, 2006, at a cost of $1,179.77.

K. Airmasters looked at the second floor compressor on July 6, 2006, at a cost of $790.00.

L. Airmasters replaced a second floor compressor on July 6, 2006, in the amount of $2,381.00.

M. Airmasters performed “start up first stage” of the second floor unit on July 6, 2006, at a cost of $640.00.

N. Johnson installed a new temperature control and sensor software control system at a cost of $65,529.00 and a separate Invoice for $1,360, totaling $66,889.00.

Robbins also claims that repairs made to the roof constitute CAM costs and therefore the State is liable for such charges. Three repairs made to the roof are in question. First, Capital Roofing Contractors repaired a hole in the roof on August 16, 2005, at a cost of $415.01. Designed Roofing Systems made repairs to the roof on two occasions - on March 9, 2006, at a cost of $673.74, and on June 26, 2006, at a cost of $251.00.

Lastly, Robbins claims that the State is liable for payments made to Indiana Insurance Company as a result of lightning damage on the roof. Robbins submitted two claims to Indiana Insurance (one in the amount of $9,115.80 and the second for $2,826.81) totaling $11,942.01. Indiana Insurance subtracted the $2,500.00 deductible and $169.30 for the roof leak and refunded Robbins the remaining $9,272.71. Robbins asserts that the State is liable for 17% of the amount tendered to Indiana Insurance.

ISSUES

The primary issues before the Court are (1) whether Claimant is entitled to recover from the Respondent the alleged CAM costs arising from maintenance and repairs to the HVAC system, repairs to the roof, insurance deductibles for lightning strikes, and Fire Marshall inspection of certain repairs; and (2) if so, whether Claimant's calculations of such recovery are appropriate.

ANALYSIS

I. The claimed HVAC repairs constitute CAM costs, thereby entitling Claimant to recover in a manner consistent with the terms of the Lease Agreement.

All of the HVAC repairs, including those performed on the second floor, constitute CAM costs under the terms of the Lease Agreement and therefore entitle Robbins to recovery from its tenants, including S.O.S., in a manner consistent with the terms of the Lease Agreement. As mentioned above, the Lease Agreement's definition of CAM costs includes “common area utilities, [and] HVAC maintenance” for the premises. The Lease Agreement further explains that: “all costs and expenses incurred by the lesser… [In] replacing and maintaining the common areas, signs, and other facilities on the premises shall constitute a definition of Common area Maintenance Costs.”' The costs that Robbins seeks to recover are derived from expenses incurred from repairing and maintaining the HVAC system that provides air conditioning to common areas on the first, second, and third floors of Jefferson Terrace. Paying to perform maintenance when the HVAC system is not working, as well as paying to replace parts of that system, fit firmly under the definition of CAM costs in the Lease Agreement.

Contrary to the assertions made by S.O.S., none of the HVAC maintenance and repair costs constitute capital improvements. S.O.S. asserts that these charges sought by Robbins constitute capital improvements and therefore, by the terms of the Lease Agreement, are not CAM costs. S.O.S. challenges that if Robbins were to collect for such claimed capital improvements, it can only do so after showing that improvements reduced the Common Area Costs. This argument would hold merit, however, the costs associated with the HVAC maintenance and repairs do not constitute capital improvements. Because the Lease Agreement does not define “capital improvement” this Court looks to Illinois precedent regarding the issue. For support, S.O.S. points to the Illinois Supreme Court's definition of an improvement as “a valuable addition made to property (usually real estate) or an amelioration in its condition, amounting to more than mere repairs or replacement, costing labor or capital, and intended to enhance its value, beauty, or utility or to adapt it for new or further purposes.” St. Louis v. Rockwell Graphic Systems, Inc., 153 Ill.2d 1, 4 (1992) citing Black's Law Dictionary 682 (5th ed. 1979). Under this definition, the HVAC costs claimed by Robbins do not constitute a capital improvement. The court in Latvia v. 155 Harbor Drive Condominium Asps'. Inc., 244 Ill. App.3d 220 (1st Dist.1993), agrees with this definition when it also distinguishes improvement from “mere repair or replacement.” Latvia, 244 Ill. App. 3d at 223.

Robbins cites multiple cases where Illinois courts have decided whether work done to a property constituted a capital improvement. In Neofotistos v. Metrick Electric Co., 217 Ill. App. 3d 506 (2nd Dist. 1991), the court held that installing an electrical system in a previously unlighted and unpowered shopping center constituted a capital improvement because it substantially enhanced the value of the property. Neofotistos, 217 Ill. App. 3d at 508. Similarly, in Continental Insurance Co. v. Walsh Construction Co. of Illinois, Ill. App. 3d 135 (1st Dist. 1988), the court held that construction of an underground sewer system was an improvement that substantially enhanced the value of property. Continental Insurance Co., 171 Ill. App. 3d at 140. The present case can be distinguished because, unlike Neofotistos and Continental, Robbins has not added a completely new system to the building. Had Jefferson Terrace not been equipped with an HVAC system and Robbins decided to add a new system, the addition would certainly constitute a capital improvement. However, that is not the case. To repair and maintain the working status of the existing HVAC system, Robbins paid for condensers and boilers (mere elements of an existing system) to be replaced when they stopped working properly. The expense that raises the biggest question is whether replacing the temperature control and sensor software control system constitutes a capital improvement. However, the Court believes that even this large element of the HVAC system is closer to a mere replacement of an element as opposed to the addition of an entirely new system. For the above reasons, the Court concludes that all of the costs associated with the HVAC system cannot be considered capital improvements.

Lastly, the Court holds that all of the HVAC costs associated with common areas, even those that S.O.S. does not occupy, are CAM costs correctly assigned to S.O.S. under the Lease Agreement. S.O.S. claims that it is not liable to pay CAM costs associated with the HVAC system on the second floor because it does not occupy the second floor. However, there are common areas on the second floor such as elevators and the lobby entrance. Nowhere in the Lease Agreement does it state that the Lessee is only liable for common areas that it occupies. In fact, this interpretation would undermine term “common area”. Common areas, such as elevators and lobbies, provide benefits to all tenants and therefore costs associated with such areas are apportioned to all tenants. It is evident that all costs claimed by Robbins with respect to the HVAC system repairs and maintenance do constitute CAM costs, including those only associated with common areas on the second floor.

II. The charge associated with the Fire Marshall inspection is a CAM cost, entitling Claimant to recovery in a manner consistent with the Lease Agreement.

Similar to the HVAC, the charge associated with the inspection by the Illinois Fire Marshall constitutes a CAM cost under the Lease Agreement and therefore entitles Robbins to recovery from S.O.S. in a manner consistent with the Lease Agreement. The Fire Marshall inspection was performed following the installation of new boilers on both the first and third floor HVAC systems. Just like the replacement HVAC parts, the inspection was required to repair the HVAC systems and ensure proper functionality. The cost of the Fire Marshall inspection is certainly within the mentioned definition of CAM costs from the Lease Agreement, which includes equipping, protecting, replacing, and maintaining the common areas. This argument is furthered because the Lease Agreement specifically states that costs and expenses associated with fire protection are included in CAM costs. Just as this Court found that the HVAC expenses were not capital improvements, the same logic extends to the Fire Marshall inspection. The inspection was not performed to increase the value of the property. The sole purpose was to comply with code and ensure proper functionality of me HVAC system. The charge associated with the Fire Marshall inspection is a CAM cost, thereby entitling Robbins to collect from S.O.S. in a manner consistent with the terms of the Lease Agreement.

III. The charges associated with the roof damages are CAM costs, entitling Claimant to recovery in a manner consistent with the Lease Agreement.

The costs Robbins has charged S.O.S. associated with roof repairs are disputed due to an apparent ambiguity in the terms of the Lease Agreement. S.O.S. claims that it is responsible for costs associated with maintenance of the interior of the premises, but not maintenance to the exterior. The sections of the Lease Agreement relevant to this dispute are Article VIII - Sections A and B. The dispute arises with respect to the word “responsible”, which is found in both Sections A and B. Section A involves maintenance performed on the interior of the building. It is clear, as Robbins maintains, that the language “Lessor is responsible…” refers simply to the Lessors duty to perform necessary maintenance. Section A cannot be interpreted to imply the Lessor is also responsible for payment of such maintenance, because it goes on to state: “[m]aintenance of the premises shall include replacement of light bulbs and light fixtures, and be charged to the Lessee as part of the CAM charges.”

The real issue arises in Section B. Lacking a clarifying sentence regarding who bears the costs, there are two plausible interpretations of the word “responsible”. First, as Robbins asserts, the definition could carry over from Section A. If this definition were to apply, Robbins would only be responsible to perform the maintenance, and the charges may be added to monthly CAM costs. Second, lacking a similar clarifying sentence as is found in Section A, the word “responsible” may be interpreted that the Lessor has a duty not only to perform the maintenance, but also to pay for it. S.O.S. maintains that the second interpretation should apply and that Robbins is responsible for such exterior maintenance costs.

Robbins is correct to argue that, in the event of a contractual ambiguity, it shall be construed against the party who drafted the contract. Scoville Court Condominium Ass'n v. Orozon, 171 Ill. App. 3d 932, 935 (1st Dist. 1988). It is true that many cases have held ambiguous language in a lease agreement shall be interpreted most favorably for the lessee. Clarendon America Insurance Co. v. Prime Group Realty Services, Inc., 389 Ill. App. 3d 724, 729 (1st Dist. 2009). However, this is a misstatement of the common law rule because it presumes (as may usually be the case) that the lessor drafted the lease agreement. The present case demonstrates the infrequent circumstance where the Lessee drafts the Lease Agreement. It would be unjust to interpret a contract against the non-drafting party, therefore Robbin's interpretation shall be adopted. Interpreting the Lease Agreement against S.O.S., Robbins is entitled to recover expenses associated with roof repairs as part of its CAM charges.

IV. The charges associated with the insurance charges are CAM costs, entitling Claimant to recovery in a manner consistent with the Lease Agreement.

The costs Robbins has charged S.O.S. associated with lightning damage are also included in the definition of CAM costs, as defined in the Lease Agreement. The language of Article IV of the Lease Agreement clearly indicates that an insurance deductible is within the scope and definition of CAM costs. An insurance deductible is certainly within the scope of “all costs and expenses paid or incurred by Lessor during the term in … insuring, … the common areas, signs, and other facilities on the premises…” Further, the Lease Agreement specifically includes within the definition of CAM costs “extended coverage, and other insurance costs and expenses…” S.O.S. is correct to point out that the Lease Agreement requires Robbins to maintain public liability insurance that covers property damage, which is exactly what Robbins has done. Robbins correctly submitted invoice No. 0601170624 to the insurance company in the amount of $2,826.81 and invoice No. 061130186 in the amount of $9,115.80. The total invoiced amount was $11,942.01. The insurance company refunded Robbins $9,272.71 after subtracting the $2,500.00 deductible and $160.30 for the roof leak. The $2,500.00 deductible and $169.30 roof leak, totaling $2,669.30, are the costs that Robbins sustained. Accordingly, Robbins is entitled to recover a percentage of the $2,669.30 associated with the damage in a manner consistent with the terms of the Lease Agreement.

V. Computation of Damages.

As discussed above, there are common areas throughout the building that provide benefits to all tenants. It is therefore evident that each tenant is responsible for a percentage of CAM costs based not only on the areas they occupy, but also on common areas throughout the building. As stated in Article VII, Section B of the Lease Agreement, the CAM expenses should be calculated by subtracting the CAM monthly allocation for the period of 12/01/04 - ] 1/30/06 ($1,088.94), which is found in the Rent Allocation Schedule of the Lease, from the total charged amount of CAM expenses. However, because S.O.S. has already paid a substantial portion of the CAM charges and has simply challenged specific charges, the amount owed is simply a percentage of the total extra CAM charges that this Court has found S.O.S. to be responsible to pay Robbins. As this Court has found S.O.S. responsible for CAM charges associated with both areas it occupied, as well as common areas throughout the building, a different percentage must be applied to charges associated with these two categories. S.O.S. shall pay 46% of the CAM expenses associated with the third floor, representing the 46% of the 21,669 square feet of the third floor occupied by S.O.S. Similarly, S.O.S. shall pay 17% of the CAM expenses associated with the common areas throughout the building that it does not occupy, representing the 17% of the entire 59,189 square foot building that S.O.S occupies. The “Invoice Comments” provided by the parties were used to determine whether each charge represents work done on the third floor (indicating 46%), or work done elsewhere (indicating 17%). For invoices where the work description is unclear as to where the work took place, the smaller 17% was used to calculate damages. The table below presents each CAM charge for which S.O.S. is liable and the total amount of $29,609.62 that S.O.S. is liable to pay Robbins.

CONCLUSION

For the foregoing reasons, this Court finds that Claimant has demonstrated, by a preponderance of the evidence, that Respondent is liable to compensate it for the total unpaid CAM charges in the amount of $29,609.62. All charges associated with the HVAC maintenance, fire inspection, roof maintenance, and lightning damage were correctly categorized as CAM charges and should be charged to Respondent in the manner prescribed above. The Departmental Report submitted in Respondent's Second Supplemental Combined Rule 55 Discovery and Departmental Report indicates that sufficient lapsed funds would have been available from fund 362-35010-1200-0000 to pay the $29,609.62 amount due Claimant.

Claimant is also seeking Prompt Payment Interest pursuant to the Illinois Prompt Payment Act, 30 ILCS 540/1 et seq. (“Act”). This Court has held that once a State agency's ability to pay a bill from a prior fiscal year has ended, its liability for late payment interest ceases. See, Airwork Corp. v. Stare, 43 Ill.Ct.Cl. 353, 354 (1990). When Claimant submitted its invoice on July 28, 2006, Respondent could pay outstanding liabilities out of existing appropriations for the prior fiscal year until August 31, 2006. See 30 ILCS 105/25(b) (West 2004). Section 540/3.2(1) of the Act provided that any bill approved for payment must be paid or payment issued to the payee within 60 days of receipt of a paper bill or invoice and if payment is not issued within this 60 day period interest payment of 1% shall be added for each month or fraction thereof after the end of the 60 days until final payment is made. 540 ILCS 540/3.2(1) (West 2004). When the lapse period ended on August 31, 2006, along with Respondent's ability to pay the invoice, Respondent had not exceeded the 60 day period to pay the obligation. We therefore find that Claimant is not entitled to Prompt Payment Interest. See Ficek Electric & Communications Systems v. State, 45 Ill.Ct.Cl. 358, 361 (1992).

It is hereby ordered that Claimant is awarded $29,609.62 in full and final satisfaction of this claim.

STEFFEN, J.