Midland Management Co. v. Helgason

630 N.E.2d 836, 158 Ill. 2d 98, 196 Ill. Dec. 671, 1994 Ill. LEXIS 9

• Court: Illinois Supreme Court
• Decided: January 20, 1994
• Docket: 75195
• Status: Published

Opinions

JUSTICE FREEMAN

delivered the opinion of the court:

Plaintiff, Midland Management Company (Midland), as landlord, appeals from the appellate court’s affirmance of the circuit court of Kane County’s determination that Midland waived its right to assert a forcible entry and detainer action by accepting Federal housing assistance payments, made on behalf of defendant, Ronald Helgason.

FACTS

Defendant entered into a written lease agreement with Midland for the lease of a residential unit at Harbor Village Apartments in Aurora. Defendant’s tenancy was subsidized under section 8 of the United States Housing Act of 1937 (Section 8) (42 U.S.C. § 8 (1991)). As a result of the subsidy, defendant was required to pay a total monthly rent amount of $6. The remainder of the fair market rent value for the unit was to be paid under Section 8 in the form of a housing assistance payment.

Pursuant to the lease agreement, defendant, as tenant, agreed to pay the costs of repairs for damage to the property resulting from his carelessness, misuse or neglect. On April 3, 1991, Midland served defendant with a demand for reimbursement for the repair of defendant’s water-damaged floor. Defendant refused the demand and, subsequently, tendered his $6 monthly rental payment to Midland.

On May 15, 1991, Midland served defendant with notice of termination of the tenancy for failure to reimburse for the water-damage repair and also returned defendant’s rent. Midland, however, continued to receive Section 8 housing assistance payments through August 1991.

When defendant failed to vacate the leasehold pursuant to the termination notice, Midland brought an action in forcible entry and detainer. (Ill. Rev. Stat. 1991, ch. 110, par. 9 — 101 et seq.) The trial court entered judgment for Midland, and awarded it possession, damages, and costs. Subsequently, however, the trial court granted defendant’s motion to vacate the judgment, ruling that, inter alia, Midland’s continued acceptance of the housing assistance payments subsequent to serving notice of termination of the tenancy constituted waiver of the breach of the lease as a matter of law.

The appellate court affirmed (241 Ill. App. 3d 899), and we granted Midland’s petition for leave to appeal (134 Ill. 2d R. 315(a)). We now reverse that decision.

SECTION 8

Prior to our discussion, we deem it necessary to discuss the nature of the Section 8 rent subsidy program and housing assistance payments. Section 8 is a Federal housing subsidy program administered by the United States Department of Housing and Urban Development (HUD). (42 U.S.C. § 1437f (1991).) Section 1437f(a) provides, in pertinent part:

"For the purpose of aiding low-income families in obtaining a decent place to live and of promoting economically mixed housing, assistance payments may be made with respect to existing housing ***.” (42 U.S.C. § 1437f(a) (1991).)

To that end, HUD is authorized to enter into housing assistance payment contracts with owners of housing in which some or all of the units shall be available for occupancy by low-income families. See 42 U.S.C. § 1437f(b) (1991).

Housing assistance payment contracts establish the maximum monthly rent which the owner is "entitled” to receive for each dwelling unit with respect to which such "housing assistance payments” are to be made. (Emphasis added.) (42 U.S.C. § 1437f(c)(1) (1991).) Pursuant to the Code, the assistance contract shall provide that assistance payments may be made only with respect to a dwelling unit under lease for occupancy by a family found to be a low-income family at the time it initially occupied such dwelling unit. However, vacancy payments may be made with respect to unoccupied units for a period not exceeding 60 days in the event that a family vacates a dwelling unit before the expiration date of the lease for occupancy or where a good-faith effort is being made to fill an unoccupied unit. 42 U.S.C. § 1437f(4) (1991).

For Section 8 purposes, HUD utilizes a formula to determine the rental value of a housing unit based upon a fair market rental value in the nonsubsidized housing market. (42 U.S.C. § 1437f(c)(1) (1991).) A tenant eligible to participate in the Section 8 program pays a portion of the market rental value, or rent, based upon his income. (See 42 U.S.C. § 1437a(a)(1) (1991); East Lake Management & Development Corp. v. Irvin (1990), 195 Ill. App. 3d 196, 199.) The amount of the monthly assistance payment is the difference between the maximum monthly rent which the contract provides that the owner is to receive for the unit and the rent the family is required to pay under section 1437a(a). 42 U.S.C. § 1437f(3)(A) (1991); East Lake Management, 195 Ill. App. 3d at 199.

DISCUSSION

The singular issue which we decide is whether Midland’s acceptance of Section 8 housing assistance payments resulted in a waiver of its right to forfeiture of the lease.

It has long been established that any act of a landlord which affirms the existence of a lease and recognizes a tenant as his lessee after the landlord has knowledge of a breach of lease results in the landlord’s waiving his right to forfeiture of the lease. (Vintaloro v. Pappas (1923), 310 Ill. 115, 117.) Simply put, evidence of acts inconsistent with a declaration of a termination of the lease may prove waiver of the breach, which operates to reinstate the lease. (See Simmons v. Berryman (1930), 342 Ill. 274, 278.) Acceptance of rent accruing subsequent to a breach is one such inconsistent act. (See Weiss v. Johnson (1963), 28 Ill. 2d 259, 261.) It is immaterial by whom the rent is paid if it is received as rent and on behalf of the lessee. 51C C.J.S. Landlord & Tenant § 117(4) (1968).

Defendant contends that the appellate court correctly held that Section 8 housing assistance payments constitute rent, the continued acceptance of which resulted in a waiver of Midland’s right to forfeiture. We note that our appellate court, sitting in the first district, has held otherwise. See East Lake Management & Development Corp. v. Irvin (1990), 195 Ill. App. 3d 196.

We agree, for various reasons, with the decision in East Lake Management that the assistance payments do not constitute rent. The most compelling of these reasons is our construction of the lease agreement between Midland and defendant. (Cf. National Corp. for Housing Partnerships v. Chapman (1984), 18 Ohio App. 3d 104, 481 N.E.2d 654 (in determining that housing assistance payment was not rent, court examined terms of landlord/tenant agreement and also determined that because assistance was not personal to tenant, it was not rent).) Significantly, HUD is not a party to the lease agreement, and, incidentally, there is no contention that defendant is a party to the housing assistance payment contract between HUD and Midland.

A lease is an agreement which gives rise to the relationship of landlord and tenant. (24 Ill. L. & Prac. Landlord & Tenant § 2 (1980).) It is essentially a type of contract (Illinois Central R.R. Co. v. Michigan Central R.R. Co. (1958), 18 Ill. App. 2d 462, 484), and, as such, it is governed by the rules which govern contracts generally (Design Studio International, Inc. v. Chicago Title & Trust Co. (1989), 185 Ill. App. 3d 797, 802; 51C C.J.S. Landlord & Tenant § 202(2) (1969)). "[Wlherever there is a contract its terms must control the rights of the parties.” (Fichter v. Milk Wagon Drivers’ Union, Local 753 (1943), 382 Ill. 91, 100.) Thus, we believe that regardless of our characterization of the housing assistance payment, the rights and obligations of defendant and Midland are controlled by the terms of their agreement. Conceivably, even if such payments constitute rent, parties entering into a lease agreement would, nonetheless, be free to agree on the effect of the landlord’s acceptance of such payments after a tenant’s breach.

The principal function of the court in construing a lease is to give effect to the intention of the parties as expressed in the language of the document when read as a whole. (See Dix Mutual Insurance Co. v. LaFramboise (1992), 149 Ill. 2d 314, 320.) Relevant to disposition of the issue now before us is whether the parties intended that housing assistance payments constitute rent. We note that the lease agreement included in the record recites neither the most current term of the lease nor the most current rent amount. However, the agreement was admitted, without objection, into evidence as representative of the agreement between the parties.

The clause in the lease concerning rent provides that defendant, as the tenant, agrees to pay a sum certain amount for rent per month. The clause also provides:

"The Tenant understands that his monthly rent is less than the market (unsubsidized) rent due on this unit. This lower rent is available either because the mortgage on this project is subsidized by the Department of Housing and Urban Development (HUD) and/or because HUD makes monthly payments to the Landlord on behalf of the Tenant. The amount, if any, that HUD makes available monthly on behalf of the Tenant is called the tenant assistance payment and is shown on the ' "Assistance Payment” ’ line of the Certification and Recertification of Tenant Eligibility Form which is Attachment No. 1 to this Agreement.”

The lease further provides that the landlord may terminate the agreement for nonpayment of rent. In that regard, we note that no similar remedy is available to Midland in the event of nonreceipt of the housing assistance payment.

Nowhere in the lease agreement is the housing assistance payment defined or referred to as rent. It is simply characterized as a separate payment made on behalf of the tenant in the form of a tenant assistance payment. Under the terms of the agreement between defendant and Midland, rent is the monthly dollar amount tendered by defendant to Midland in consideration of the lease. Under the terms of the lease, the housing assistance payment was not received as rent. Thus, Midland’s acceptance of such payments did not operate to waive forfeiture of breach.

Our conclusion with respect to the assistance payments may be supported on yet another basis. Rent is given in consideration of a lease. As we have already stated, a lease gives rise to the landlord-tenant relationship. In order to establish the relation of landlord and tenant, the possession and control or the right thereto of the property must pass to the tenant. (24 Ill. L. & Prac. Landlord & Tenant § 3 (1980); 51C C.J.S. Landlord & Tenant § 2(2) (1968).) No such relationship is created between HUD and the owner of property. Significantly, HUD is not a party to the lease agreement, and it does not appear from the lease that HUD acquired any possessory interest in the property.

The housing assistance payment contract has not been provided as part of the record. However, based upon our review of the statutory provisions concerning such contracts, we believe that such contracts have as their purpose to make non-low-income housing available to low-income families, thereby achieving HUD’s goal of economically mixed housing. Although the housing assistance payment is equal to some portion of the fair market rent to which the landlord is entitled, that fact does not define the nature of the payment as rent. In the most traditional sense, "[r]ent is the return made to the lessor by the lessee for his use of the land.” (Emphasis added.) (Automobile Supply Co. v. Scene-In-Action Corp. (1930), 340 Ill. 196, 200; Cottrell v. Gerson (1939), 371 Ill. 174, 181.) It is the tenant, not HUD, who has the use of the land.

Further, we believe it significant that when a subsidized housing unit becomes vacant following the owner’s eviction of an eligible tenant, under the terms of the housing assistance payment contract, the landlord is entitled to continue to receive vacancy payments for a period of 60 days or more upon a showing that he is actively seeking to fill the vacancy with another Section 8 eligible tenant. (See 42 U.S.C. § 1437f(4) (1991).) This suggests to us that the housing assistance payment flows with the rental unit, and not the Section 8 tenant. Thus, the housing assistance payment contract, unlike a lease, survives the landlord-tenant relationship.

Finally, we do not believe that HUD intended that housing assistance payments be considered rent. To characterize the assistance as such would effectively defeat HUD’s interest in the development and availability of economically mixed housing for low-income families. As a practical matter, landlords confronted with the possibility of forfeiture of breach for the acceptance of housing assistance payments would be less apt to open their doors to low-income families and would seek to fill their vacancies with non-rent-assisted families. But see Greenwich Gardens Associates v. Pitt (1984), 126 Misc. 2d 947, 484 N.Y.S.2d 439 (holding that intent of legislature was that assistance be considered rent because, inter alia, contract rent, as defined in 24 C.F.R. § 880.201 (1993), is the total amount of rent specified in the contract as payable by HUD and the tenant to the owner for an assisted unit).

We conclude that under the terms of the lease agreement, Section 8 housing assistance payments did not constitute rent. Thus, Midland’s continued acceptance of such payments did not effect a waiver of breach of the lease.

We note that defendant raises two arguments: (1) whether Midland failed to meet its burden of proof as required under Federal housing regulations and the terms of the lease, and (2) whether Midland established sufficient cause to terminate the tenancy.

These issues were presented in the appellate court and resolved in favor of Midland. Reconsideration by this court would yield no different result. We therefore decline further review.

CONCLUSION

For all the forgoing reasons, we reverse the judgments of the appellate and circuit courts and remand the cause to the circuit court for further proceedings.

Judgments reversed; cause remanded.