The Illinois Supreme Court has ruled a property holdings company must comply with the terms of a pre-existing annexation agreement, even though it was negotiated by a previous land owner and the company only purchased a portion of the land covered by the annexation agreement.
The high court reversed a DeKalb County Circuit Court decision that determined the defendants, Kirkland Properties Holdings Company, LLC I, and Kirkland Properties Holdings Company, LLC II, were not bound by the terms of the annexation agreement because they owned only a portion of the land that was subject to the agreement.
Justice David Overstreet delivered the judgment, filed May 18; Chief Justice Mary Jane Theis and Justices P. Scott Neville, Lisa Holder White, Joy Cunningham, Elizabeth Rochford, and Mary K. O’Brien concurred in the unanimous judgment and opinion.
In its third amended complaint, the village of Kirkland in northwest DeKalb County alleged KPHC breached a 2003 annexation agreement executed by it and the National Bank and Trust Company of Sycamore as trustee of trust, then legal owner of property now consisting of an annexed 114-acre subdivision. The village alleged KPHC should be subject to the terms of the annexation agreement as successor owners of record to the trustee when they purchased undeveloped portions of the property from Plank Road LLC, a company that had acquired the property from the trustee
In 2019, the village sent demand letters to KPHC requesting they deposit a letter of credit in the proportionate amount of their lots in the subdivision and/or the amount of road frontage of such lots to help pay for maintenance or replacement of the roads in the subdivision. The village alleged KPHC breached the annexation agreement by refusing its request. The village sought damages for breach of contract or, in the alternative, equitable relief in the form of specific performance. When the village filed suit, KPHCI owned 15 of the total 56 lots in phase one of the subdivision, while KPHCII owned 19 of the total 26 lots in phase two of the subdivision.
After a DeKalb County judge found the new property owners shouldn't be subject to the annexation agreement, a panel of the Illinois Second District Appellate Court reversed.
The appellate court found “that the annexation agreement contemplated that the subject property would be divided and sold, potentially to different developers, who would be proportionally bound by the annexation agreement, which was a covenant that ran with the land.” The appellate court noted that the annexation agreement set forth that the property was to be developed and subdivided in stages or phases.
The appellate court further noted the “multiple provisions in the Annexation Agreement clarifying there is an end to any owner’s obligation to participate in the development of the property.” The appellate court held that “these provisions show that, following the completion and acceptance by the Village of any stage or phase of development, the responsibility for the improvements will lie with the Village and not with any subsequent purchaser.”
The appellate court didn’t feel individual homeowners would be unduly burdened with the responsibility of municipal improvements. The court held that, instead, the adoption of defendants’ interpretation would lead to an absurd result. For example, the appellate court explained that, “if the landowner had sold every lot but one to a new developer, in this case 81 of 82 lots, the new developer would not be a ‘successor’ and would not be bound by the terms of the annexation agreement.”
The appellate court concluded the annexation agreement’s terms clearly contemplated the subject property would be subdivided and developed in stages and phases, which is consistent with proportionally burdening successor owners with obligations under the annexation agreement.
The appellate court ruled the original parties to the annexation agreement intended to confer successor status on those who purchase a portion of the subject property during the development phase, a result entirely consistent with the public policy favoring adherence to annexation agreements and the orderly progression of development. The appellate court held the Village had properly pleaded that KPHC were successor owners of record bound by the terms of the annexation agreement and that the Village’s complaint should have survived dismissal.
Because KPHC were no longer the prevailing party, the appellate court vacated the circuit court’s award of attorney fees and costs.
The Supreme Court agreed with the appellate court’s findings, noting the village of Kirkland only demanded the new property owners pay for road maintenance and construction proportionate to their ownership stake in the property, as required under the annexation agreement. They cannot get around those obligations by arguing they only owned a portion of the original property, the high court said.
"Defendants purchased the property with full knowledge of the covenants and obligations to the Village," Overstreet wrote in the opinion. "Pursuant to the annexation agreement, the Village’s action seeks damages or requests a letter of credit in an amount specific to the stage of development, for roadways only, and in accordance with defendants’ proportion of ownership. We conclude that the Village has sufficiently pleaded that defendants are successor owners of record bound by the terms of the annexation agreement and, as such, its complaint should have survived dismissal."