Tuesday, May 3, 2011

805 ILCS 5/3.20: Another Method for Collecting Delinquent Rent

As bad economic conditions continue, landlords and creditors have been trying find creative ways to get judgments and collect unpaid debts. Many of the landlords that I work for find themselves under pressure from banks to do a better job of collecting unpaid rent. Yet, there are so many ways that even diligent property owners can miss out on thousands of dollars of unpaid rent. Aside from bankruptcy, debtors find all kinds of ways to make it impractical to even waste the time and money trying to collect this debt. This is especially true where property owners or managment companies were careless during better economic times. Some of my clients consistently struggle with the problem of poorly drafted leases, lack of basic tenant information, and long periods of inaction on delinquent accounts. Half a decade ago many of these clients were more worried about having their leasing departments get leases signed and getting available spaces occupied. Now they find themselves scrambling to get paid lower rent rates while their property values have plummeted and occupancy is down. A frequent problem that I encounter with some of these clients is that they have leases where the tenant is a non-existent corporation. This is a serious problem if a lease is not accompanied by a personal guarantee. And, it is not too infrequent to encounter a client who simply refuses to personally guarantee a lease. Now, technically, in a situation where tenants sign the lease as principals or officers of a non-existent corporation or as individuals doing business as a non-existent corporation, they are still personally responsible for the terms of the lease. However, this is not as easy it sounds. And, it sometimes take a not too insignificant amount of time to sort out who the actual tenant is on some of these leases, then draft a suit with proper attachments, and then litigate the matter in court without having to amend the complaint to name the proper parties. This translates into more money being spent by clients and that in turn leads to problems. So, the other attorney in my office and I have been trying to find ways to get this process done quicker. The first thing I do when I get a lease is check the Illinois Secretary of State website to see if the company is a valid Illinois corporation or authorized to do business in the state. You would think that a property management company would take the time to see if their tenant is a valid corporation but that is often not the case. If the corporation is non-existent, I look to see if there is a personal guarantee. If there is no guarantee the situation can potentially get more complicated. Since this situation has happened more than once, the attorney in my office recommended using a statute to make this process quicker.
(805 ILCS 5/3.20) (from Ch. 32, par. 3.20) Sec. 3.20. Unauthorized assumption of corporate powers. All persons who assume to exercise corporate powers without authority so to do shall be jointly and severally liable for all debts and liabilities incurred or arising as a result thereof.
Essentially, in the future, we are gonna try to argue that if a corporation is non-existent and an individual is signing a lease that says they are a principal or officer of said corporation, that they are using unauthorized corporate powers to execute the lease. Now, there are other ways to go about this, but hopefully this will be more efficient. I recently filed a complaint citing this statute and attached a certificate from the secretary of state verifying that the corporation was non-existent. The defendant never showed up and the court granted me a default. It is set for prove-up next month. Hopefully, we will prevail and be able to use this statute with success in the future.


Michael W. Huseman said...

Excellent. Very useful citation.

Dale said...

That method looks really effective. Considering the fact that economic problems happen, I think that this method can still help you.

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