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Illinois Appellate Court Rules that School Cannot Be Forced to Give Up Property Tax Exemption in Exchange for Zoning Approval

On June 25, 2021, the Illinois Appellate Court issued a significant decision affecting the property tax exemptions of Illinois not for profit organizations. The facts of Keystone Montessori School v. Village of River Forest date back over 20 years ago. At that time, the School sought a place to locate and found an ideal location in the Village of River Forest. The School entered into a lease for that property with the option to later purchase. The property was located in a commercial district which did not permit school use. When the School decided to purchase the property, the School sought zoning approval from the Village. The Village agreed to approve the School’s zoning application, but only if the School agreed to waive its right to a property tax exemption for as long it would operate at that location. With the School having nowhere else to go, and classed already started, the School had no other options and agreed.

Since that agreement in 1998, the School has paid over 1.1 million dollars in property taxes. Sure enough, the property taxes eventually took a toll on the School and depleted its resources. To protect the future of the School and its students, the School sought to amend the Agreement regarding the waiver of property tax exemption but the Village refused each attempt. With no other options, the School filed a suit to invalidate the agreement. The School’s primary argument was that the agreement purporting to waive property tax exemption violated public policy and was therefore invalid. The trial court, and the appellate court today, agreed.

The appellate court recognized that as a general rule, courts have traditionally upheld the right of parties to freely contract. Parties to a contract, however, cannot agree to do something which violates public policy. The public policy at issue in the case is found within state statute which provides that in Illinois, the property of schools is exempt from taxation. The court recognized that the exemption granted to schools exists because of the public benefit that schools provide to society. Schools which are burdened with property taxes have fewer resources to devote to students, teachers, and education, which in turn harms the public. The property tax exemption afforded to schools is not only a private right held by the school, but also a public right. The Court stated “[a] statute passed to protect the public cannot be rewritten by private contract because, in part, the members of the public protected by the statute are not and cannot be made parties to such a contract . . . . Keystone could not waive that exemption . . . because it was not only Keystone’s exemption to waive.”

In addition, the Illinois Constitution provides that “taxes upon real property shall be levied uniformly by valuation ascertained as the General Assembly shall provide by law.”  The General Assembly in turn specifically provides for property tax exemption for schools. However, the Village’s agreement with the School was illegal because “the Village subsumed to – or usurped for- itself the power to decide whether Keystone would receive the exemption authorized by the Illinois Constitution and provided without express exception in the Tax Code.”

This case provides a powerful lesson to municipalities and not for profit organizations alike. Municipalities cannot trade or barter zoning approval in exchange for property tax exemption waivers. Municipalities may not extract these rights through private contract and may not use their zoning codes to pressure these organizations into forfeiting what the State has rightfully determined belongs to them. Property tax exemptions for nonprofit organization like schools and churches exist as a matter of paramount public policy. The Illinois Appellate Court did well to reaffirm that today.

*Sorin A. Leahu represented Keystone Montessori School prior to joining the firm of Dalton & Tomich, P.C.

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