Illinois Supreme Court Finds Millennium Park Usage Agreement to be Non-Taxable License

By Ares G. Dalianis and Scott R. Metcalf

Alternative uses for exempt property has become a hot topic for many units of local government in recent months.  Just before Christmas the Illinois Supreme Court issued a decision in Millennium Park Joint Venture v. Houlihan addressing one such alternative use of an exempt property.  The decision upholds lower court findings that the operator of the Park Grill restaurant at Millennium Park does not have to pay property taxes on its use of the Chicago Park District property because its use is pursuant to a license agreement rather than a lease. 

The opinion focuses on two important property tax exemption issues.  First, the decision lays out the criteria for determining when an agreement is a non-taxable license.  Second, and the cause of a 4-3 split among the Justices, it addresses the procedures that can be used to challenge an assessor’s determination that an agreement is a lease.

As we discussed in our July 15, 2009 FR Alert on the Appellate Court opinion in this case, under Illinois law a leasehold interest in exempt property is taxable, but a license agreement is not.  Therefore, it is very important to know whether an agreement concerning exempt property is a lease or a license.  The Illinois Supreme Court noted that the Appellate Court had correctly applied existing case law to make this determination, but unlike the Appellate Court it focused instead on the principal difference between a license and a lease: a lease confers the right to exclusively possess and control property, while a license merely confers a right to use property for a specific purpose subject to the licensor’s control. 

The Court went on to note that an agreement must contain four essential components to be a lease: (1) the extent and bounds of the property; (2) the term of the lease; (3) the amount of rent; and (4) the time and manner of payment.  But inclusion of these four elements does not necessarily transform a license into a lease.  Similarly, licenses can generally be revoked at will and are not assignable, but these factors are not determinative either.  Rather, the key point is that a lease surrenders possession and control of the property to the lessee for an agreed upon term. 

In applying these criteria to the agreement between the Chicago Park District and Millennium Park Joint Venture, the Court found the agreement to be a license.  The Court noted in particular that Millennium Park Joint Venture has only limited use of the property and that the Park District has substantial control over the way in which Millennium Park Joint Venture runs the Park Grill restaurant.

Also of note is the Court’s ruling on the proper procedure for challenging an assessor’s decision about whether an agreement is a license or a lease.  The general rule is that a challenge to a property tax assessment must be brought according to the provisions of the Property Tax Code, which provides for the filing of tax objection complaints after exhaustion of administrative remedies.  There are two exceptions to this general rule though.  An equitable remedy is immediately available where a tax or assessment is unauthorized by law and where the property is exempt from taxation. 

Here, a slim majority of the Court found that because placing an assessed value on a license was unauthorized by law, it was proper for Millennium Park Joint Venture to go directly to Circuit Court to seek declaratory and injunctive relief.  The dissent, on the other hand, would have ruled that the lower courts lacked jurisdiction over the controversy.  The dissent reasoned that the correctness of the assessor’s determination does not affect the authority of the assessor to determine whether an agreement is a license or a lease.  Because the dissent did not believe the assessor’s determination was unauthorized by law, they would have had Millennium Park Joint Venture seek relief by going to the Board of Review and then filing a tax objection complaint.

Going forward, both dimensions of the decision are instructive to those with governmental property tax exemptions.  On the one hand, there is now greater clarity on how an agreement should be structured so as to avoid creating a taxable leasehold interest.  On the other hand, the parties to an agreement concerning an exempt property now know that an assessor’s decision concerning the agreement can be challenged directly in circuit court without having to go through the Board of Review and filing a tax objection complaint.