Millennium Park Restaurant at Center of Appellate Court Opinion Clarifying When Property is Taxable

By: Scott Metcalf

The Illinois Appellate Court recently issued a decision in Millennium Park Joint Venture, LLC v. Houlihan, et al. that clarifies when a business arrangement constitutes a taxable leasehold interest and when it is merely a non-taxable concession agreement. No. 1-07-3141 (1st Dist. June 29, 2009). It is well settled that when a government or other tax exempt entity leases its real estate to a non-exempt entity, the non-exempt entity's interest in the property is taxable. At issue in this case was whether the arrangement between the parties constituted a taxable lease or a non-taxable concession agreement or license.

In 2003, Millennium Park Joint Venture (the "Vendor") and the Chicago Park District signed a document titled a "Concession Permit Agreement." The agreement provided that for a period of 20 years the Vendor would use certain areas of Millennium Park to operate the Park Grill restaurant, a seasonal retail store, and a concession area. After a newspaper reported that the Vendor was not paying property taxes, the Cook County Assessor imposed a property tax assessment on the Vendor's interest in the real estate. Fearing a tax liability, the Vendor asked the Circuit Court to declare its agreement nontaxable and to enjoin the assessment and the collection of property taxes. The Circuit Court ruled in favor of the Vendor, and the County defendants appealed.

After finding that the lawsuit was properly raised by the Vendor, the Appellate Court turned to the central issue: whether the agreement constituted a lease or a concession agreement or license. To make this determination a court looks not at the name of the document, but at the legal effect of the contract terms and the intent of the parties. For a court to find a document a lease, the agreement between the parties must include:

• A grant of possession of the land;
• A definite period of time;
• A definite description of the property; and
• A definite price and payment arrangement.

In contrast, a concession agreement or license contains:

• A limited right to use the property for a specific purpose;
• Management and control of the property retained by the owner;
• The ability of the owner to revoke at will the right to use the land; and
• The inability of the property user to transfer the right to use the land to others.

The Court found that the agreement in question was a license rather than a lease. The agreement imposed numerous requirements on the Vendor's business operations, including regulation of the Vendor's staff, signs, and management. It also granted the Vendor the right to use the property only in cooperation with others and did not grant the Vendor the exclusive right to possess the property. Finally, the agreement contained only a vague description of the property subject to the agreement.

This case demonstrates the importance of property tax considerations in the preparation of lease agreements by school districts and other units of local government. Not only must care be taken to preserve a property's tax exemption, but also to achieve the desired tax result.

If you would like to discuss this case or other aspects of property tax law, please contact Ares Dalianis, Michael Hernandez, Scott Metcalf, or any Franczek Radelet attorney.