Illinois Court of Appeals Rejects School’s Attempt to Contract Away Property Tax Exemption

In Keystone Montessori School v. Village of River Forest, 2021 IL App (1^st) 191992, decided on June 25, 2021, the First District Court of Appeals held that an Illinois school may not waive its property tax exemption. In 1998, Keystone Montessori School applied to the Village of River Forest to operate a private school on a parcel of land that was zoned for commercial use. The Village agreed to let Keystone use the property as a school so long as the school waived its property tax exemption. Twenty years later, Keystone challenged this contract provision, arguing that it was unenforceable and void as against public policy. The Illinois Appellate Court agreed. While Illinois courts have traditionally upheld the right of parties to freely contract, the court would not enforce a contract that violates public policy.   

Section 15-35 of the Tax Code provides that “all property of schools, not sold or leased or otherwise used with a view to profit, is exempt …” 35 ILCS 200/1525 (West 2018) (emphasis added). In refusing to enforce the contractual exemption waiver, the Court found that the interest in the enforcement of the school’s waiver of its property tax exemption was outweighed by the public’s interest in the benefit conferred by the property tax exemption to schools. The court found that granting schools property tax exemptions is a benefit conferred on the public, including relief of the state’s burden to care for its citizens. The court reasoned that the statute exempting schools from property tax was passed to protect the public and therefore cannot be rewritten by private contract because the members of the public protected by the statute are not and cannot be made parties to such a contract.

The Keystone case reaffirms the strength and durability of the school property tax exemption granted by the Illinois Constitution.  Because the purpose of exemptions is to compensate the school for its contribution to the public good, and because the public is the intended beneficiary, imposing a tax on a school for educating students could cause harm beyond the harm to the contracting parties alone. The Court, therefore, found that “Keystone could not waive [the] exemption through the Tax Agreement because it was not only Keystone’s exemption to waive.”  

If you have any questions about the Keystone case or property tax exemptions in general, please contact your Robbins, Schwartz attorney.

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