“Chicago Residential Landlord and Tenant Ordinance” – KSN landlord/tenant attorney Jessica Ryan discusses the Chicago Residential Landlord and Tenant Ordinance (RLTO). She reviews what steps need to be followed to be in compliance with this Chicago ordinance. (54 mins.)
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Episode Transcription
Nikki: You are listening to the KSN podcast and today we’re talking about the Chicago residential landlord and tenant ordinance, also known as the RLTO. Welcome to the KSN podcast where you’ll hear from KSN attorneys as they share their experience and insight on legal issues surrounding community associations, collections, property tax appeals, and landlord tenant law. I’m Nikki and today we’re joined by KSN attorney Jessica Ryan. Jessie practices landlord tenant law, as well as condominium, townhome and homeowner association law. Please note that this is a previous seminar recorded on May 25th, 2022.
Jessica: Hi, everybody. Welcome to today’s webinar. All right, so let’s get started. I’m Jessie Ryan. Today, I’m going to be presenting the webinar on the Chicago residential landlord tenant ordinance. There is a lot to cover within the RLTO. So, I’m going to cover the most commonly violated sections, but if there is something I wasn’t able to cover or you have questions that I’m unable to get to at the end, always feel free to contact me. My information is in the chat. So go ahead, copy that and then at the very end on my question slide, I will also have my phone number and email so that you guys can get ahold of me at any time. All right. So, background if you are a landlord or property manager in Chicago, you have probably fallen victim to one of the technical pitfalls of the notorious residential landlord tenant ordinance, or what we call for short, the RLTO. You might hear attorneys refer to it as the CRLTO. If you have not actually been sued under the RLTO, my guess is that you probably have violated it and you just don’t know it and the tenant has not called you out on whatever tiny little mistake you may have made at some point in the last 15 years.
So, the RLTO is actually a section of the Chicago municipal code and its purpose is to regulate leasing for properties within the city’s limits. It is, as I’m sure you’re aware, very tenant friendly. There are high penalties against landlords for even the most minor violations and the ordinance allows tenants to recover attorney’s fees and court costs with every lawsuit and that’s really where it hurts the landlords because the tenant’s rights attorneys do not hold back in claiming their attorney’s fees and those attorney’s fees rack up very, very quickly and can often be the highest percentage of the cost to the landlord when sued under the RLTO. On top of that, in most cases, a landlord’s liability is absolute whether the violation was intentional or not. This is called strict liability and it removes any court discretion in hearing both sides of the story, hearing the landlord’s excuse or the reason they accidentally caused this violation to happen. With strict liability, the landlord is liable no matter what. So, if you are a landlord or a property manager and you violated the RLTO, in most cases you will be liable for the penalties and your tenant’s attorney’s fees and court costs. So, it’s really, really important to be aware of the RLTOs requirements and understand what you can do to avoid all of the pitfalls and technicalities.
Now the RLTO is very, very broad, and it covers almost all residential rental properties within the city limits. It applies to every residential dwelling unit with just a few exceptions and a dwelling unit can range from an individual condominium unit to high rise apartment buildings. It’s also very, very important to understand that a dwelling unit under the RLTO includes all amenities and any other spaces used in relation to the tenant’s occupancy of the apartment. So, it specifically under the ordinance includes parking garages, storage spaces, amenities spaces. So, when we talk about maintenance obligations and things like that under the RLTO, it’s a maintenance obligation for the dwelling unit, it is a maintenance obligation for the apartment, the parking garage, the storage unit, the amenity spaces, all of that is included in the definition of a dwelling unit. Now, there are numerous exceptions for the properties that are covered by the RLTO and the most common exception is for owner occupied buildings of six units or less.
Now, a common misconception is that the exception exists for all properties of six or fewer units, but that’s not the case. This exemption only applies when the landlord’s primary residence is a unit in the building. So, this exception is really for someone who owns a three flat, lives on the first floor and rents out the other two units. So, that person would not be subject to the RLTO and those two rental units would not be subject to the RLTO. The ordinance also creates exceptions for hotels, motels, bed and breakfast, hospitals, monasteries, homeless shelters, dormitories, all of those are exempt from the requirements of the RLTO. Properties that are under a real estate purchase or installment contract, they’re also exempt from the RLTO as long as either the seller or the purchaser is living in the property. So, if it is a true rental property with tenants that is being passed from one owner landlord to a subsequent owner landlord, and neither of those landlords live in the property, they just happen to be selling it by an installment contract, they would still be subject to the RLTO. They don’t get that exception. One of them has to be living in the unit.
And finally, this is an important one for some of our bigger clients who have larger buildings with staff and maintenance on site. A unit that’s occupied by an employee of the landlord; when that occupancy is conditioned on employment at the property, like the apartments live in manager, maintenance, supervisor, something like that, that unit, that apartment would be exempt from the RLT as long as their occupancy is related to and connected to their employment. So, when they’re no longer employed, they no longer get to live in that property.
So, let’s talk about what makes up a good RLTO lease. What are some of the requirements for a lease in Chicago? First, it is really important to know that the RLTO covers written and oral leases for new and renewed tendencies. So, this covers renewal leases as well, even if it’s just a one-page renewal that says you’re extending the term for another 12 months. Now, the requirements of the ordinance are really, really intricated and a handshake verbal agreement will almost immediately subject a landlord in Chicago to liability. So, because of all the detailed requirements of the ordinance, I always recommend that you have a written lease and have our office review your lease in Chicago, make sure everything is in compliance, and you have all of the addendums and disclosures attached to your lease so that you don’t have any violations at all. We see these so often when a client turns a case over for eviction, and we’ve never seen the lease before we file the eviction case. It’s required by law, that the lease has to be attached to the eviction lawsuit and we get into court and the tenant has spoken to a tenant’s rights attorney who takes one look at that lease, sees three or four violations of the RLTO and then unfortunately our client, if they’re true violations and we have that strict liability, remember where a landlord is liable no matter what. So, often the landlord ends up paying the tenant to move rather than getting their unpaid rent and being able to go through the eviction process because the penalties are high, the tenant’s attorney’s fees are high, and the tenant gets to recoup both of those based on that strict liability. So, turning a case over for eviction is not the time for us to find problems with the lease. Always, always have your Chicago reviewed.
Let’s talk about some of the prohibited lease terms. So, this section of the ordinance, it outlines numerous provisions that would become unenforceable if a landlord tried to include them in a Chicago lease. So, I’m going to discuss the most commonly violated ones just for time’s sake but we can always review your entire lease and make sure everything is in compliance. First, there’s a ban on any attorney fee provision that would require a tenant to pay the landlord’s attorney’s fees in any lawsuit arising out of the tenant. So, that applies to an eviction lawsuit. Even when your tenant has failed to pay rent and you go to court to legally evict that tenant from non-payment of rent, you cannot recover your attorney’s fees in the city of Chicago. You’re also limited in the amount of late fees that can be enforced. A late fee is limited too, and here we go with math, there’s a reason I’m not an accountant but it is $10 per month for the first $500 in monthly rent, plus 5% for any amount of rent over 500.
So, as an example, if the monthly rent is $1,200, you would be charging late fee of $45 and we calculate that with a $1,200 monthly rent, you get $10 for the first $500, that leaves a remaining $700 in monthly rent and you get 5% of that $700, which is the amount of rent over 500, 5% of 700 is 35. You add that to the first $10 that you’re allowed to have, and you come up with your $45 late fee. So, you got to be able to do some math if you’re a landlord in Chicago. The same calculation also applies to any discount or rent reduction for early payment.
Other provisions that are prohibited are any arbitration or mediation clauses. A tenant must have the right to file a jury demand. In an eviction case, you cannot prohibit trial by jury or any termination provision that allows a shorter notice period for one party. So, you can’t have a provision in your lease, where you as the landlord can terminate upon 30 days’ notice, but a tenant can only terminate on 60 days’ notice, has to be the same and waiving statutory requirements for service of a notice cannot do that. A Chicago lease cannot waive personal service of a five-day eviction notice which would allow the landlord to simply post the notice. That’s why in Chicago, you have to personally serve all of your five-day notices. So, those are some more of the prohibited lease terms.
Now, if a landlord attempts to enforce one of these prohibited provisions, the tenant gets to recover their actual damages if they sustain real monetary damages, plus a penalty of two months’ rent, plus their attorney’s fees and court costs. So, if you want to take an eviction case on your own to court, and you’ve got a late fee of $75 a month, and that calculation is in violation of the late fee charge and you are actually trying to enforce that provision, meaning you are asking for the court to award you $75 per month in late fees, the tenant can actually bring a counterclaim against you, and you would be required to pay that tenant two months’ rent plus their attorney’s fees and court costs. So really, really important that you keep those prohibited lease terms out of your leases.
So, let’s talk about some required summaries that have to be attached to your lease for any new or renewed lease. So, if you are entering into a renewal, even a one-page renewal, you need to include these two summaries. You have to attach the summary of the Chicago RLTO it’s that Chicago rents right form, that is the RLTO summary as well as a summary of security deposits rights obligations, remedies, and the interest rates that have gone back, I think goes back 10 years and it needs to be the current one for the year that you are entering into the lease. So, the date of the lease, if it’s in 2022, you need to make sure you are attaching the security deposit interest rate summary with 2022 as the most recent interest rate. Both of these summaries are prepared by the city and you can always check the city’s website to get the most current one. It’s always interesting if somebody is entering into a lease, maybe on January 2nd, the city has not yet issued their new security deposit interest rate summary.
So, it’s impossible for you to attach the 2023 interest rate summary on January 2nd, 2023, because the city hasn’t even come out with it. It usually is somewhere in the first week of January that they issue it. So, our advice always for any client who’s entering leases in those first few days of January, attach the prior years and as soon as the new one comes out, forward it to the tenant and have a record that you did provide it as soon as it came out. The RLTO summary, there have been some new ones, some updated ones. The fair notice amendment, which we’ll talk about, to the RLTO came out in 2021. Also recently, maybe in the last five or six years; porch and deck safety language was added. So, at the very, very bottom of the RLTO summary, it will say its last updated date and I think the fair notice they updated it in 2021. So, it should say updated 2021. If you don’t have the most current version, please let me know and I am happy to forward that to you. So, now if you violate this section and don’t attach these summaries, your tenant can actually just terminate the lease on 30 days’ notice. Whether you then try to cure the problem and give them the summary or not, they get to just end the lease on 30 days’ notice and recover a hundred dollars penalty plus their attorney fees and court costs.
You also have to disclose in writing the name, address, and phone number of the owner or person authorized to manage the property and the person allowed to accept service of process and notice and demands. This might be the same person. It might both be your managing agent who’s getting disclosed as owner agent and disclosed as the person who is able to accept notices but just make sure, be aware that the ordinance requires you to include name, address, and phone number. I know some individual landlords, they just don’t want their phone number on there, they don’t want their home address on there. If you don’t, take out a PO box but you have to include an address and a phone number and you have to keep this information current and the obligation extends to any successor landlord, owner, or manager. So, if you’re a management company and you take over a property, it’s very, very important that you update the tenants with your information including name, address, and phone number.
Now, for my property managers who are listening, if you or your landlord fails to provide these written disclosures, you can become liable for all of the obligations of the landlord under the ordinance and become authorized to receive service of process notice and demands. So that means if you take over a property and fail to disclose your information, and let’s say, say the landlord had previously taken a security deposit improperly, your management company would actually be liable with the landlord for all of the security deposit penalties, even if you had nothing to do with the property when the security deposit was taken. So, please make sure if you are coming into a property or taking an individual investor, owner’s property on to manage and they already have leases, make sure that you send a disclosure out to all of the tenants with your information. In this case, there actually is an opportunity for the landlord to fix the problem. So, if the landlord doesn’t provide the information the tenant has to serve or can serve a notice of termination giving the landlord 14 days to comply and if the landlord complies, there are no penalties, the tenant cannot terminate, but if the landlord kind of blows off that notice and does not provide the disclosure the landlord would be liable for one month’s rent or the tenant’s actual monetary damages, plus of course the attorney’s fees and court costs.
Notice of foreclosure this is not as relevant as it was maybe 10 or 12 years ago, but it’s still important to note that if the rental property is in foreclosure, that means that the foreclosure lawsuit has been filed by the lender. So, we’re talking about the beginning of the foreclosure process when the mortgage company files the foreclosure lawsuit, not the end of the process when there’s actually a foreclosure sale and the owner loses the property. We’re talking about that beginning step when the lawsuit is filed. If that has happened, the landlord has to disclose that lawsuit in writing. So, for any new leases, that disclosure should be attached to the lease as an addendum but this obligation is continuous and the landlord is required within seven days of being served with a foreclosure lawsuit to provide written notice to the current tenants. Now, not only does that notice have to be served on tenants, it has to be served on anyone who and I quote, “consistently pays rent on behalf of the tenant.” But of course, the ordinance does not say what constitutes consistency. And so, who knows, what does it mean when someone consistently pays rent? Is that one time? Is that 10 times? But what I do know is that in RLTO claims, the tenant often wins. So, it is always my recommendation to be as conservative and careful as possible. So, if you have a person who has paid rent on behalf of a tenant, at least one time, I would say that could be consistent and you should send that person notice of the foreclosure as well. So, never take any chances.
The foreclosure disclosure, — foreclosure disclosure, I’ve never said that one together before has to include the court in which the lawsuit is pending the case name and number and there is some specific legal language regarding the landlord’s and tenant’s ongoing obligations during the foreclosure case. If the landlord violates this section, the tenant can terminate their lease on 30 days’ notice with no opportunity to fix the problem for the landlord and there is a $200 penalty, plus of course, attorneys fees and court costs. Now, notice of code violations and utility shutoffs; a new lease or a lease renewal. So again, really, really important to remember this is for renewals as well, and has to be contained in the body of the lease or as an addendum written disclosure of any code violations and utility shutoffs. So, this includes any city of Chicago code violations that occurred during the 12 months prior to the tenancy for the unit or the common areas as well as any pending code enforcement litigation and it has to have the case number and list the cited violations.
In addition, you have to disclose any notice by the city or a service provider for any shutoffs for water, gas, electric, or other utility service to the unit or to the common areas and these obligations are continuous and have to be updated through the tendency if you do receive a code violation during someone’s tendency. So, you may have noticed, I kept slowly saying and emphasizing the common areas and that’s because the scope of this section is not just limited to that tenant unit or to their apartment for code violations. It goes beyond the unit and common areas that are owned by the landlord to the common areas of the entire property and building. So, even a landlord of a single condominium unit within a community or condominium association has to investigate and disclose code violations or utility shutoffs in the common areas of the association building. So, you might rent out your old condo in the city, and you have no idea that 11 months ago the association had some tuck-pointing violations and if you don’t disclose them, you are in violation of the RLTO and if you’re in violation, the tenant can serve a notice of violation. You do get 14 days to fix the problem and make the correct disclosures but if you don’t, you’re liable for one month’s rent or the tenant’s actual monetary damages, whichever is greater plus attorney’s fees and court costs.
So, if you are an individual landlord and you’re renting a condominium unit, definitely look into any code violations. The city of Chicago actually has a website where you can just plug in an address, and it will show you code violations or if you are in a condominium association, you might be able to reach out to management or the board and ask if there has been landlord access. Under the RLTO, there are a bunch of reasons that a landlord can enter the property, including for emergency repairs in the unit and unexpected access when maintenance in other areas of the building require it. What you need to know is that other than these two practical exceptions for emergency or unexpected access, you have to give the tenant two days’ notice of your intent to enter either by mail, telephone, or written notice at the unit. Now, in emergency situations, or when you need unexpected access, you can enter without notice beforehand, but then you have to give notice that you went into the unit within two days afterwards and other than those two emergency unexpected access situations, you can only go in at reasonable times and the ordinance defines reasonable as being any time between 8:00 AM and 8:00 PM or any time that’s requested by the tenant.
So, let’s say, the tenant has a broken cabinet door and you’re like, okay, today is Wednesday, we can come in Friday after 1:00 PM and the tenant says, “I would love for you to come this afternoon, I’ll be home. Please stop by.” Absolutely that waves that two days’ notice. You absolutely can go into the unit that afternoon because the tenant has requested that time to have access to the unit. Now, a violation of the section, so if you go into a unit without two days’ notice you would be liable for a penalty of two months’ rent or twice any monetary damages plus attorney’s fees and court costs.
So, let’s talk about renewal and termination of tenancy. Now, at the end of a lease, a tenancy in Chicago does not just simply terminate on its own. In fact, you have to serve a written notice on the tenant that you do not intend to renew the lease. This was amended in; I think it was July of 2021. It was called the fair notice amendment to the RLTO and that second bullet point there lays out how you serve a notice or the timeframes for serving a notice for non-renewal notices, termination notices for month-to -month tenancies and for renewals with rent increases. So, if you want to increase rent, you have to give notice within these timeframes. So, for residents who’ve lived in the property less than six months, they get a 30-day notice. For residents who have lived in the property six months to three years, they get a 60-day notice and any tenants who have lived there longer than three years, they get 120-day notice and that’s 120 days prior to the end of the current term if you are non-renewing them, or if it’s terminating a month to month, you do it at 120 days and they will get four months before that month-to-month tenancy actually terminates.
Now the city came out with kind of an FAQ after this ordinance and they did clarify that when the ordinance says residents who have lived in the property, that timeframe that you’re calculating is actually how long they have lived in their current unit. So, if they have transferred units, you only have to calculate on the unit they are currently living in, but you have to actually calculate how long they have been in that unit even if each 12 months you make them sign a new 12-month lease, you do not get to count just that 12 month most current term. It’s actually how long they have lived in the unit that they are living in. Now, on the other hand, if you want to renew the lease you have to offer a renewal within 90 days before the lease ends. So, you cannot force a tenant to make a decision about renewal more than 90 days prior to the end of the lease. If you do violate this section, the tenant can recover one month’s rent or actual damages plus attorneys’ fees. So, it is really important to give the correct time frame for your notices, especially non-renewals and month to month. It’s heartbreaking when an individual landlord might send over a 60-day notice or a 30-day notice to terminate a month-to-month tenancy and it turns out that the tenant has been living there four or five years, and they’ve already waited 60 days while they’re notice was expiring and now, I have to tell them, no, now you have to serve 120-day notice and wait another four months. So really, really important to know upfront those time frames.
The other new addition to the RLTO is the tenant’s one time right to pay and stay. Now, this is a one-time right for delinquent tenants during a filed eviction case. If we have filed an eviction case against this tenant, they have the right to pay all of the past due rent, plus the court costs in full and stay in the property. Any time up to the entry of the eviction order, they have this right, and we have no choice but to dismiss the case. They do not have to pay attorney’s fees. They do not have to pay other charges like late charges or utility charges, unless those amounts are deemed additional rent in your lease. So, if late fees and utility charges are defined as additional rent in your lease, then they could be included in the amount of rent that the tenant has to pay. If not, the tenant does not have to pay those. The ordinance specifically says they only have to pay the full amount of rent plus the court costs and this right goes anytime up to the day of entry of an eviction order.
So, if you can imagine if a tenant files a jury demand and delays the case 6, 8, 12 months, while the jury case navigates through the current court system and you as the landlord are racking up attorney’s fees with court appearance after court appearance, maybe there’s discovery, maybe there’s motions whatever might be going on, then you are paying these attorney’s fees and on the morning of jury trial, that tenant walks in with a check in his hand, just for the amount of rent plus court costs. We have no choice, but to accept that check and dismiss the case, even though you have racked up thousands of dollars in attorney’s fees, preparing for a jury case. So very, very difficult. It makes things very, very difficult if you have a delinquent tenant who is also a conduct issue and juggling which are you going to do? It was always a very, very easy decision. If you served a five-day notice and the tenant didn’t pay within those five days, it was black and white. We could take the case to court and get our eviction order and that was always kind of the simplest way because it was so black and white. It was the simplest way to get to the end of an eviction and hit the main goal of removing that tenant even when there were conduct issues, that was just the easy way to do it.
Now, you really have to take into consideration if this tenant is a conduct problem, do we want to just serve a five-day notice because we could get six months down the road and they pay, and then we have to keep them as a tenant and now deal with the conduct issues and start over with a 10-day notice. So, it kind of makes the decision a little bit more complicated when you have a tenant who has both issues going on. The only light in this new provision is that it is only a one time right. So, a tenant cannot use this opportunity 2, 3, 4 times if they keep falling behind in rent. So, we’ve already had a case where the tenant utilized this right in February, and immediately fell behind in March. We filed again in April for unpaid rent and this time around that tenant cannot use the one time right to pay and stay. So, in our dismissal orders, when we dismiss the case, we’re making sure that that language is included to protect our clients and we’re noting our files with big bold letters, “tenant used their one time right,” so that we are very, very clear when the tenant comes back again, if there’s a refile, that they do not try to use that right again.
So, that’s a new one. That is new just in the last year or so for the one time right to pay and stay and now that the eviction ban lifted, it’s just been about six, eight months that we’ve been seeing this in play and how tenants are actually very aware of it and are paying. But it is nice when they try to make payment in full and we can tell them, no, you have to pay the court costs too. For those that aren’t as educated, it stops them in their tracks and they have to come up with, in the city of Chicago, 5, 600 more dollars for those court costs.
Alright, so let’s talk about security deposits. This is the most highly litigated, most commonly violated section of the RLTO. Now, be aware that in Illinois security deposits are also regulated by the security deposit interest act and the Illinois security deposit return act. So, usually the requirements of the RLTO are more stringent than those of the Illinois statutes. So, generally if you’re in compliance with the RLTO, you’ll be in compliance with the state statutes and you don’t really have to worry about the state statutes. The municipalities do have the right to place further restrictions or take state law a little bit further for their own governance and that is protected by the US constitution. So, in this case, even though there are those Illinois statutes out there, you should just comply with the RLTO. There are exceptions. So, first you need to know the definition of security deposit under the ordinance has been extended to include prepaid rent and pet deposits as well.
So, as a general rule consider any funds that you are holding on behalf of the tenant that might be applied later or returned to the tenant as subject to the obligations of this security deposit section. Second really, really important highlight that you guys all have to grasp is that this section imposes strict liability for non-compliant landlords across the board. There’s one small exception for calculation of interest, but otherwise, if you violate any section of the security deposit provisions, you are liable and the consequences are absolute even if the violation was unintentional, inadvertent you are going to be hit and the hit is a penalty of return of the security deposit, plus a fine of twice the amount of the security deposit, plus attorney’s fees and court costs. So, if you have a $3,000 rent and you’re taking a security deposit of twice the monthly rent, which is a $6,000 security deposit, and you leave one little requirement off of your security deposit receipt, you are returning the $6,000 security deposit. So, you won’t have it for any damages at the end of the lease. You are paying a penalty of twice the security deposit, the security deposit of $6,000. You are going to pay a penalty of $12,000, plus the attorney’s fees and court costs. So really, really important to understand the security deposit requirements and avoid these horrible steep penalties.
All right, so let’s talk about a receipt. When you take a security deposit, you have to provide the tenant with a written receipt that contains the name of the person who received the deposit, the date on which the deposit was received, and a description of the rental unit, which really just means the address of the rental unit. You don’t have to say it’s a brown brick building, just the address will suffice. If the security deposit was given to the tenant by the landlord’s agent or property manager, then the receipt must also identify who the landlord is. And finally, the tenant must sign the receipt. Now, if you receive an electronic funds transfer, you still have to give a receipt and get the tenant’s signature. So, like I said, just an inadvertent mistake on the receipt would result in a return of the security deposit and a two times penalty. So, these issues often come up when something else is going on, right? So, the tenant wants to get out of their lease because they want to buy a house. The tenant wants to get out of their lease because all of a sudden, they are getting transferred to San Francisco and they want to get out of their lease without any penalty and they talk to an attorney and the attorney says, “Hey, let me look at your security deposit receipt. Oh, hey, this was given to you by the manager, but they didn’t say what the landlord’s name is. Well, let’s just tell them that now they have to return the security deposit, pay a penalty of twice the security deposit, plus my attorney’s fees, or let you out of the lease scot free.”
So, this is like the leverage that the tenant’s rights attorneys are using. And so, to eliminate that leverage that you place in your tenant’s hands, really, knowledge is power. Knowing all of these provisions and making sure that you don’t violate them, gives you the upper hand and doesn’t put that power and that leverage in the hands of your tenants. So, that’s kind of why I’m stressing all this and it’s so, so important all of these little details, because I see how these penalties are used over and over and over again by tenants to get something else, they want. These violation binds are used as leverage against my clients all the time. So, let’s eliminate that, let’s be educated and knowledgeable and never make these mistakes so that we always have the upper hand and can say, nope, we complied, here is A, B, C, and D, and everything is done and we are going to need that early termination fee.
Alright. So, let’s talk about disclosure of the deposit’s location. Once you accept a security deposit and give a proper receipt to the tenant, the deposit has to be held in a federally insured interest bearing non commingled bank account in Illinois. That’s a lot of requirements, right? So, you have to include in your lease the name and address of the financial institution where the security deposit will be held and if there’s no written lease, you have to provide that information in writing within 14 days after you accept the deposit. Also, if you transfer the security deposit from one bank to another, you’ve got 14 days to provide a notice of the transfer with the new bank’s information. So, I get a question, always, “We deposited it at Chase, what address in Illinois am I supposed to use for one of these big national banks?” Just find the address of a local branch and that’s all you need to do. I thought it was interesting when the Cook County RTLO came out, there were a lot of provisions that were parallel and similar to the Chicago ordinance, but they omitted the requirement of an address for the bank. You have to disclose the name of the bank, but not an address within the state of Illinois, because in this day and age, it’s irrelevant. Having an address for a bank in the state of Illinois is really just irrelevant as long as it’s like a Chase or a Wells Fargo or something like that.
Alright, let’s talk a little bit about co-mingling. So, co-mingling the funds simply means mixing your assets with the security deposit and you just can’t do that. So, there’s a million ways to commingle and even a temporary or inadvertent harmless commingling is considered a violation. So, this is really an issue where we would look case by case to see exactly where the security deposit had been deposited, if any of your funds or your assets were in that account as well. The purpose really is that the security deposit is the money of the tenant and you are merely holding that money until the end of the lease to see if you’re allowed to claim any of it for damages and while you are holding that money, it should not be subject to any of your bills, your creditors. So, it has to be kept in a separate account and you cannot use it for your day-to-day operations. So, two changes have been made to the RLTO that are a little bit more accommodating to the landlord when it comes to co-mingling. One of the problems was the landlord would accept the first month’s rent and security deposit in the same check. Upon lease signing the tenant hands over one check that covers both first month’s rent, which is the landlord’s money immediately, and the security deposit, which is not.
So, the second that the landlord deposited that check in their operational account, even if the second later they transferred the security deposit to a separate account, that moment that it’s deposited the landlord had commingled the security deposit with their own money and if you can believe it or not, I’m sure you believe it, cause I’m a tenant’s rights attorneys, there was a lawsuit with that claim. So, the RLTO did make a change where you can now accept the security deposit and first month’s rent in one check, as long as you transfer the security deposit to a separate account within five days and let the tenant know if it’s a separate bank or anything, provide that information. The other issue that was going on is the bank would issue interest on a security deposit that was being held and the interest would be the money of the landlord. So, there was another case where the interest when it hit was commingled with the security deposit and obviously that’s out of the landlord’s control. So, that’s no longer an issue. The RLTO does not consider interest on the security deposit that’s issued by the bank to be co-mingling. This section like the other security deposit sections imposes strict liability meaning that the penalty of twice the security deposit plus attorney’s fees and costs is absolute whether or not the violation was intentional. So, make sure that when you accept the security deposit, you are not commingling with your own fund.
The interest, now you must also pay annual interest either in cash or as a credit for upcoming rent on any security deposit held more than six months at the rate set forth by the city of Chicago. Seems simple enough but of course there’s always little technicalities. You have to pay the interest within 30 days following the end of each 12-month rental period. So, you cannot simply pay interest to all of your tenants on January 1st, since most of the tendencies are not going to enter or end on December 31st. So, for each tenant, when they end a 12-month rental period, you have 30 days after that to pay that particular tenant their interest. Also, if a lease covers an atypical period, like a 13- or 14-month lease, you still have to pay interest at the end of the 12-month rental period and then again, when the lease ends return the security deposit with any additional interest for the remaining one or two months. So, another issue is that the interest accumulates from the beginning of the rental term, but often the tenant will give you the security deposit before the term begins. So, when are you actually supposed to start calculating the interest? And the path of least risk is to just start calculating interest from the day you receive that security deposit even though it says from the beginning of the rental term.
You do have a little reprieve in penalties as I had mentioned, when it comes to interest. If the tenant believes the amount of interest is incorrect, he has to provide written notice that gives you 14 days to either pay the correct amount, plus an additional penalty of $50, you can’t get away without a penalty, or provide a written reply outlining how the interest was calculated and why you think it was correct. So, if there’s still a dispute, the tenant does have the right to file a lawsuit, but at least it gives you that short amount of time to double check your calculation and make sure that your interest is correct.
Fail of the rental property, when you sell your rental property the security deposits plus the interest have to be transferred from the seller to the buyer. So, the buyer is technically called the successor landlord, and has to notify all tenants in writing within 14 days of the purchase that he now has the security deposits and any interest and that notice has to include his name, address, phone number, and name, address, phone number of any managing agent. So that’s the buyer. The new landlord has to provide notice within 14 days of sale. On top of that, the seller, the outgoing landlord has to provide the same notice with name, address, phone of the new landlord and managing agent within 10 days after the date of the sale. Now, if you sell the rental property to the new owner, but you forget to notify the tenants within 10 days, you actually will remain liable with the successor landlord for any obligations. So, it’s very, very important if you are selling a rental property that you send this notice out within 10 days after the sale, so that if your successor landlord, the buyer makes any mistakes a few years down the road with that tenant or with that tenant security deposit, you are not going to be on the hook. You have cut your ties with that property by sending the proper notes.
Alright, we are wrapping up and I promise I’m getting to your questions in just a moment here. So, the lease is up, you have to return that security deposit to the tenant. You have 45 days to return the security deposit after the tenant vacates. Not necessarily from the end date of the lease term, it is from when the tenant vacates. So, you kind of need to be aware and on top of your property, knowing when the tenant vacates in the last few weeks of the tenancy. If there is unpaid rent, wrongfully withheld rent, or damages to the property, you can deduct those amounts from the security deposit, but you have to follow this procedure. So, if repairs are needed, you have 30 days after the tenant vacates to give the tenant an itemized statement of the damages, a list of actual or estimated cost for the repairs and copies of any receipts for the work that was actually done. Now, if the repairs can’t be completed in that first 30 days, you can provide an estimated cost of the repairs in that first 30-day period and then you would have an additional 30 days to get the work done and provide the actual receipts. Now, if you don’t follow these requirements and these specified timeframes, you are going to have to return the entire security deposit, whether or not there are damages or face a lawsuit where you could end up having to pay the entire amount of the security deposit, plus those two times penalty and attorney’s fees and costs.
So, knowledge is power, right? Please call our office for advice. Knowing all of these pitfalls and liabilities under the RLTO will arm you against little attempts by your tenants to get out of their lease, try to use RLTO claims as leverage in negotiations and it will also protect you from these really, really steep penalties. I do appreciate everybody joining today. My information is there. If you have any questions whatsoever, please feel free to reach out to me. We also have what we call our lamp program. It’s the landlord assistance multipurpose program. It’s a portal on our website where you can get some information and enter any information about yourself to kind of– it’s like an intake portal to get you guys started and there’s a ton of information at ksnlaw.com/lampforlandlords. All of these ordinances and all of the education materials that you might need. If there is anything else, feel free to reach out. I appreciate everybody joining me today and have a great afternoon. Let’s hope this rain stops and we get some nice weather for Memorial Day weekend. Take care, everybody
Nikki: That was KSN attorney Jessica Ryan. She practices landlord tenant law, as well as condominium, townhome and homeowner association law in the city of Chicago and surrounding suburbs. KSN is an experienced legal resource, ready to provide you with quality advice and exceptional service. We look forward to demonstrating how we’ve earned the trust of thousands of clients over the past 35 years. If you’d like to reach Jessie or any one of KSN’s experienced attorneys, please call 855-537-0500. You can also visit ksnlaw.com and complete the contact form to send us a message. Thanks for listening.
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Please note the material contained on the KSN Podcast is for informational purposes only and does not constitute legal advice. No attorney-client relationship is established by your review or receipt of the information contained on the KSN Podcast. You should not act on the information discussed on the KSN Podcast without first obtaining legal advice from an attorney duly licensed to practice law in your State. While KSN has made every effort to include up-to-date information on The KSN podcast, the law can change quickly. Accordingly, please understand that information discussed on the podcast may not yet reflect the most recent legal developments. Material is not guaranteed to be correct, complete, or up to date. KSN reserves the right to revise or update the information and statements of law discussed on the podcast at any time, without notice, and disclaims any liability for your use of information or statements of law discussed on the podcast, or the performance of the podcast generally. The KSN Podcast may be considered advertising in some jurisdictions under applicable law/s and/or ethical rules/regulations. © 2022 Kovitz Shifrin Nesbit, A Professional Corporation.