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Case:  In Re Institute Place Associates, 1995 WL 137308 (Bankr.N.D.Ill. 1995)

When will tenant lose an otherwise valid claim for rent reduction based upon a space audit because the tenant waited too long to discover the discrepancy in square footage and to file its suit?

Tenant sued to recover rent allegedly overpaid during its years of occupancy by reason of landlord's fraud in misrepresenting the size of the premises. Tenant claimed that landlord misrepresented the premises as containing 2000 square feet when in fact they only contained 1700 square feet.

Landlord sought a summary judgment dismissing this aspect of plaintiff's suit for three reasons. It argued (a) the contract's integration clause precluded the claim based upon oral assurances allegedly made prior to the lease; (b) the applicable 5 year Illinois statute of limitations had passed and (c) plaintiff's complaint did not sufficiently allege the elements of fraud.

The tenant argued that the integration clause had no effect where the tenant alleged fraud. In the face of such an allegation, tenant's position was that the intent of the parties was a question of fact which was subject to review in this action. As to the allegations of fraud, the tenant argued these were sufficient to meet the requirements of the federal rules of civil procedure, which only require that the pleader set out the who, what, when, where and how. In this case, the allegations showed that statements were made during the lease negotiation and continued for the next 11 years, by the landlord's managing agent. There was no proof that these allegations were too vague for landlord to prepare its defense.

The court rejected landlord's effort to have the case thrown out before trial. It agreed that the integration clause would not prevent the tenant from showing the landlord committed fraud. It held the tenant adequately pled fraud. Even though the lease was admittedly signed more than five years before the lawsuit was filed this delay in filing was not necessarily fatal to the tenant's claim. The court held that it was premature to consider whether the 5 year statute of limitations had run out because there was no proof which showed when the tenant knew or reasonably should have known of the square footage deficiency. The statute of limitations cannot expire until it starts. It cannot be shown to have started until landlord shows when tenant knew or should have known of the deficiency.