Illinois Appellate Court Decides Real Estate Partnership That Unraveled

In 1981, two doctors entered into a partnership agreement to buy an office building in which they would house their separate medical practices. Each partner contributed an equal sum of money to buy the building and agreed to share equally the cost of maintaining and operating it. In spite of this agreement, one doctor, Dr. V.S. Vedam, often paid more than his half of the expenses.

The other doctor, Dr. C.U. Reddi, and Dr. Vedam ran their separate medical practices in the building until 1991. At that place and time, Dr. Reddi moved his practice to another location and stopped paying any costs related to the building.  Communications between the doctors ended and the state of silence existed between them until around 2003 when the building was sold and the proceeds placed in escrow.

In 2004, Dr. Vedam sued to recover his share of the proceeds of the sale of the real estate, plus the expenses he had paid in excess of his shares. Reddi disputed some of Vedam’s claims and filed a counterclaim to recover rent for the years that Vedam occupied the building by himself.

The court held an initial trial and determined that an accounting was needed. The court then held a second trial to figure out who owed what to whom and how the sale proceeds should be split up. To decide each side’s claim, the court first analyzed the parties’ legal relationships.

The trial judge held that the parties’ partnership agreement remained in force until the end of 1991 when Reddi vacated the building and the parties treated the partnership as abandoned. The court found that from then until the sale of the building in 2003, the parties had no agreement of any kind. The court concluded that, during that timeframe, the parties owned the building as tenants in common.

The court concluded that Vedam did not owe any rent to Reddi even though he had occupied the entire building by himself from 1992 to 2003. The trial court based this conclusion on several factors, including that (1) Reddi left the building voluntarily and Vedam never prevented him from returning; (2) Vedam did not use the space that Reddi formerly had occupied; (3) Reddi never asked Vedam to pay rent; and (4) the parties never intended to use the building to generate income, but only to house their respective medical practices.

With respect to Reddi’s monetary claims that he paid more than his share for the building upkeep, the court ruled that it would not consider any “independent” claims based on the partnership agreement that the parties abandoned in 1991 (13 years before the lawsuit was filed). The trial court required Vedam to submit a verified pleading listing the expenses that he and Reddi had paid showing how much he claimed to be owed. Reddi’s accountant analyzed that verified claim and found errors, some of which decreased and some of which increased the amount of Vedam’s claim. The largest adjustment reduced Vedam’s claim by $24,000 for a check that Vedam received from the partnership in 1982 and did not show in his calculations. The trial court decided that Reddi owed Vedam about $89,791 for one-half the excess expenses that Vedam had paid over the years.

The net proceeds from the sale of the building were $137,613. The trial judge awarded Vedam the first $89,791 of those proceeds as reimbursement for the one-half the extra expenses he had paid and awarded the remaining sum of $47,822 to Reddi. The court’s ruling seemed to be inconsistent with its prior ruling that Vedam was not obliged to pay rent.

On appeal by Reddi, the appellate court reversed the ultimate question of how the sale proceeds should be divided. It held that Vedam, as a 50% owner of the building, was entitled to one-half the sale proceeds plus the amount that he was owed for the excess expenses. The total award was about $158,600.  Thus, Vedam was entitled to all $137,000 of the sale proceeds in escrow plus $21,000 for which Reddi was personally liable.

The appellate court agreed that Vedam had owed no rent to Reddi. In support, it cited the same reasons of the trial court, including that Reddi voluntarily abandoned the property. The court cited a prior case holding that a co-tenant was not required to account for rent during the period in which she alone possessed the property because she was entitled to exclusive use of the property after the other co-tenant abandoned it. Anderson v. Anderson, 62 Ill.App.3d 473 (1978).

The appellate court noted that Reddi had not appealed the denial of his laches and statute of limitations defenses. The court decided it would not consider such time issues on appeal. It also said it would not disturb the trial court’s factual findings unless those facts were against the manifest weight of the evidence. Ultimately, the appellate court affirmed all of the findings as to how much Reddi owed Vedam for past expenses.

This case stands for the proposition that partners through their actions can terminate a written partnership agreement through silent abandonment or can expand a partnership agreement that would otherwise be expired by continuing to adhere to its provisions.

The case also shows that a co-tenant who voluntarily abandons real property generally is not entitled to rent from a co-tenant who continues to occupy the premises.

In addition, this is a casein which had Reddi cross-appealed the denial of the statute of limitations defense, he probably would have reduced Vedam’s award for past expenses. Some of those expenses were incurred more than 23 years before the onset of the litigation. So he may have been correct in his assertion that the statute of limitations barred at least half of his claim but he did not pick up that issue on appeal thus the appellate court could not consider it. Reddi’s statute of limitations defense was therefore deemed waived. As a result, Vedam received all of the sale proceeds and an additional sum from Reddi, individually.

Furthermore, it was noted that there may have been an advantage of hiring a professional accountant to prepare financial figures. In this case, Vedam made a ledger of his own significant payments, but he left some out. He also didn’t show his calculations in detail and he subjected himself to the reduction of $24,000 which was an amount he had already taken into account. In other words, the calculations should have been one where the work is shown to the court to make the calculations more transparent.

Vedam v. Reddi, 2013 IL App (1st) 113803-U.

Kreisman Law Offices has been handling real estate litigation matters, partnerships, corporations and business disputes for individuals, families and businesses for more than 40 years in and around Chicago, Cook County and its surrounding areas, including Mount Prospect, Inverness, Bensenville, Arlington Heights, Rosemont, Skokie, Schiller Park, St. Charles, Tinley Park, Park Forest, University Park, Country Club Hills, Palatine, Palos Hills and Deerfield, Ill.

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