Buyers: Don’t Drown Yourself in a Seller’s Pre-Closing Water Bills

Many people who have bought or sold a property in the City of Chicago limits know that in order for the property to be transferred and the deed to be recorded, a water certificate from the City of Chicago must be presented at closing indicating that the water bill for the property has been paid.  However, the water certificate process is imperfect and can expose buyers of a property to financial liability for water bill payments that accrued prior to them acquiring the property.

Providing a water certificate at closing is no longer sufficient to insure that the water bill is paid up through the closing date.  Although a water certificate may not “expire” until after closing (they usually do not expire until a few months after payment), the Chicago Water Department is starting to take a stand that a water certificate only certifies that the amount through the time the water meter was last read has been paid.  If the last meter reading was a substantial amount of time prior to closing, buyers may be stuck with a water bill that includes charges from before they were owners.

This can be especially problematic for buyers of multi-unit residential buildings and non-metered properties, as the water bills for these can be excessive.  For multi-unit residential buildings, each tenant is using water and thus increasing the water bill every day during the period of time between a final water reading and the closing date.  This usage, when multiplied by the number of tenants, can amount to a large unpaid water bill for the buyer.  Non-metered properties present a slightly different problem.  These properties do not have a water meter to measure usage and are charged a flat rate for water use, based on such factors as building size, lot size, and plumbing fixtures.[1]  The flat rate is charged to the property owner bi-annually.[2]  This means a water certificate is usually not illustrative of the actual amount owed as of the date of transfer.  The last meter reading may have been months prior to closing which can lead to a situation in which a seller pays the amount due from the last meter reading which occurred months ago, obtains a water certificate that certifies the water bill is paid as of the last meter reading, and leaves a buyer with a bill for multiple months of water usage.

This additional water payment can certainly be a problem for any property purchaser, but renders purchases of multi-unit residential and non-metered properties especially risky.  However, this risk can be eliminated in any property transaction with proper diligence executed by the buyer’s attorney.  By first identifying the problem, the attorney can work to shift the burden of these excess water payments to the party that accumulated them, the seller.  Feel free to reach out to Brotschul Potts LLC to discuss how to identify and mitigate these risks as a buyer.

[1] City of Chicago: Understanding Your Water Bill (https://www.cityofchicago.org/city/en/depts/fin/supp_info/utility-billing/understanding-your-utility-bill.html)

[2] Id.

Mandatory Minimums in Illinois? (For Noncompetes, not Drug Sentences)

Do you work in Illinois? Do you have a noncompete? Have you had that job for less than two years? Are you wondering if your employer can sue you if you resign and start working for a competitor? If those answers are all ‘yes,’ then you’re not alone. Lawyers and judges are wondering the same thing.

Late last month, the Illinois appellate court in Cook County issued a split decision in McInnis v. OAG Motorcycle Ventures, Inc., 2015 IL App (1st) 130097 (June 25, 2015). Two of the judges1 on the three-judge panel, Judges Cobb and Smith, said that a Hog salesman’s noncompete was no good because (1) he had worked at the dealership for less than two years, and (2) he got no bonus or other special comp when he signed the noncompete.2 A two-year ‘mandatory minimum’ was the law, said the court, because companies must not be allowed to hire someone at will, force him3 to sign a noncompete, fire him the next day, week, or month, and then lock him out of jobs with competitors for several months or years thereafter.4

But Judge Ellis, the McInnis dissenter, said that a mandatory minimum was not the law in Illinois, nor should it be. An employee who worked at his job for 729 days should be held to his noncompete, the judge said, just as an employee who worked there for 730 days. Judge Ellis did not suggest that 729 days was the minimum, either, but his point was that there should be no time hard deck below which a court in Illinois could never enforce a noncompete.

Judge Ellis is not a one man wolf pack. Chicago chief federal Judge Ruben Castillo, Chicago federal judge Manish Shah, and Peoria federal judge Joe Billy McDade all agree. Montel Aetnastak, Inc. v. Miessen, 998 F.Supp.2d 694 (N.D. Ill. 2014, Judge Castillo); Bankers Life and Cas. Co. v. Miller, 2015 WL 515965 (N.D. Ill. Feb. 6, 2015, Judge Shah); and Cumulus Radio Corp. v. Olson, 2015 WL 643345 (C.D. Ill. Feb. 13, 2015, Judge McDade). In each of those cases, the judge rejected a mandatory minimum of employment, and said that the noncompete(s) could be enforced, assuming other factors, against employees who quit after 6 to 22 months.

But hold on, Judges Cobb and Smith in McInnis aren’t alone, either. In May of last year, now-retired Chicago federal Judge James Holderman also enforced a two-year mandatory minimum, and rejected a noncompete for a sub-two-year employee. Instant Tech., LLC v. DeFazio, 40 F.Supp.3d 989 (N.D. Ill. 2014). In June 2013, three other judges on the Cook County appellate court unanimously tossed a noncompete for a three-month employee, telling employers don’t come to court without two years or more. Fifield v. Premier Dealer Servs., Inc., 2013 IL App (1st) 120327. In June 2011, the southernmost Illinois appellate court (5th District) also suggested5 in Diedrich Ins. Agency, LLC v. Smith that there was a two-year mandatory minimum under the law. 2011 IL App (5th) 100048.

So, back to my initial point, if you signed a noncompete less than two years ago and are looking elsewhere, neither I nor anyone else has an answer for you. Our legal house is divided. The Supreme Court in Springfield needs to speak up, assuming Rauner and Madigan keep their lights on. Is there a mandatory minimum? If so, how long? Two years? Two months? The McInnis employer has until late July or early August6 to ask the High Court to zap or lower the mandatory minimum. Stay tuned.

1 Their formal titles on the appellate court are ‘Justices,’ but ‘Judges’ is easier to say, no? Is for me.

2 I’m talking here only about noncompetes for which the employees did not get a bonus or other sweetener. If they had, courts would more likely enforce them. Still, how big a bonus, or how sweet the sweetener, is an interesting question, too interesting to keep this piece short. Call me at 312-268-6795 or email me at sschaefers@brotschulpotts.com if you want to talk about it.

3 ‘Him,’ ‘his,’ and ‘he,’ of course, also mean ‘her’ and ‘she.’

4 I know, easy on the footnotes. Relax. In addition to the mandatory minimum, post-employment noncompetes can’t last any longer or apply any wider than is needed to protect the company. How long and how wide depends on each individual and his job. I could go on and on about permissible length and width, including for executives, brokers, doctors, lawyers (they’re illegal for us, so suck it) and salespeople. But as I said in note 3, you’d get bored. Call me.

5 Some say the Diedrich court ‘required’ a mandatory minimum. I wouldn’t go that far.

6Court rules require appellate losers to ask SCOIL to review the case within 35 days after the appellate ruling, or forever hold their peace. The McInnis ruling was issued on June 25th, but ‘corrected’ on July 2nd. Plus, there may be a few days more based on when the ruling was actually ‘entered’ on the docket. So call it August 10th as the deadline.

Residential Real Estate Closings

Residential Real Estate Closings

Changes Are Coming

TILA-RESPA Rule

Beginning August 1, 2015*, creditors and settlement agents will have new disclosure forms to provide consumers, under a federal law mandating a revision of existing forms. For those of you familiar with the current system, the existing Truth in Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”) each have required creditors and settlement agents to provide certain forms to consumers before or at closing. You know these forms as the RESPA Good Faith Estimate, Initial Truth-in-Lending Disclosure, HUD-1, and Final Truth-in-Lending Disclosure. The information on these forms was redundant, the language often inconsistent, and consumers had trouble understanding them. The Dodd-Frank Wall Street Reform and Consumer Protection Act required the Consumer Financial Protection Bureau to streamline the information on these forms. The end result of this streamlining is essentially that the previous RESPA Good Faith Estimate and Initial TIL forms have been combined into the “Loan Estimate,” and the HUD-1 and Final TIL have been combined into the “Closing Disclosure.” This is known as the “TILA-RESPA” rule.

LLC Operating Agreements

LLC Operating Agreements

Why Your LLC Needs an Operating Agreement

An operating agreement is a crucial document that sets forth the framework and rules for running a limited liability company (LLC). All members of a limited liability company may enter into an operating agreement to regulate the affairs of the company and the conduct of its business to govern relations among the members, managers and company. 805 ILCS § 180/15-5(a). It is in the best interest of an LLC to have an operating agreement, although it is not required by law in the state of Illinois.