CCP Golden / 7470 LLC owned real estate in Wisconsin. Kevin Breslin’s entity leased and operated four licensed skilled nursing facilities at Golden’s properties. Kevin personally guaranteed the tenant’s lease obligations. There were no conditions or limitations to the guaranty.
When the tenant defaulted on loan obligations, a court appointed a receiver to operate the nursing facilities. The receiver relocated the residents, which caused each facility to lose its license and operating permits.
Because the leases required the tenants to continuously use and occupy the premises as a skilled nursing facility, events of default were triggered in all four leases.
Meanwhile, the leases granted Kevin’s entity the option to purchase the properties. Tenant exercised the options before the lease defaults. A Purchase Option Exercise Agreement was executed, in which tenant agreed to pay Golden liquidated damages if tenant failed to close the purchase.
Kevin personally guaranteed the liquidated damages provision, too.
Tenant failed to close. So Golden sued Kevin and Kevin’s entity to enforce the lease obligation and guaranty. Golden was awarded a Judgment for nearly $22 million, representing unpaid rent, accelerated future rent not yet due, liquidated damages, and other amounts.
Kevin appealed.
Under Illinois law, rent acceleration clauses can be lawful if the parties have consented. Such provisions are treated, at least in Illinois, as a form of liquidated damages. Liquidated damages are invalid if they operate as a penalty, but can be upheld if determined to be reasonable at the moment the contract or lease is signed.
Kevin contends that accelerated-rental provisions must also offset the fair rental value of the premises, to avoid giving Golden a possible double-recovery by collecting both accelerated rents and a replacement tenant’s rents. Golden responds that there was no double recovery; the properties were unable to be re-leased and ultimately they were sold at a loss.
One of the leases provided for an offset, discounting accelerated rent by amounts that Golden had received in mitigation. Another lease did not contain this provision. Instead, it merely contained a rental acceleration clause.
Liquidated damage provisions must reasonably forecast the anticipated cost of the breach, and serve as a substitute for actual damages. In this case, Golden sold the properties, which generated a diminution-in-value claim. The DIV claim was relatively easy to prove and as a consequence, rendered the liquidated damages unenforceable as a matter of law.
Left standing is the liquidated damages clause in one of the leases that provided an offset provision. But liquidated damages provisions in the other leases must fail, since no offset was contained in those leases.
The Appellate Court vacated the district court’s award of approximately $8.4 million. Otherwise, the award was affirmed. See CCP Golden / 7470 LLC v Breslin; US Court of Appeals, 7th Circuit; Case 24-2731; December 3, 2025: https://law.justia.com/cases/federal/appellate-courts/ca7/24-2731/24-2731-2025-12-03.html.
Questions / Issues:
- Liquidated Damages. Forecasting a reasonable expectation of future losses is difficult. Close to impossible. Most appellate decisions suggest that to be upheld, an L/D formula will be tested for reasonableness not at the time the contract is signed, but instead at the moment of the loss when all of damages can be tabulated. So we write and negotiate these provisions today, hoping that if later tested our estimate was accurate within bounds of a reasonable factor. To further complicate our efforts, the loss (and consequently, the test) may not occur for many years after the contract is executed.
- Offsets for Accelerated Rents. As challenging as this drafting process can be, consider using discounting factors to present value and offsets for both mitigation and fair market valuation. Without offsets, the L/D provisions can be punitive or allow a double-recovery. Either will fail the “reasonable” test.
Stuart A. Lautin, Esq.*
* Board Certified, Commercial and Residential Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York