The Chicago Residential Landlord and Tenant Ordinance (“RLTO”) contains a series of rules governing the acceptance of security landlords by Chicago landlords. These rules are being strictly enforced by the Courts and are leading many Chicago landlords to discontinue the practice of requiring security deposits from their tenants. Instead, many are now requiring non-refundable “move in” fees.

A recent appellate court decision shows why security deposits are on their way out. In its 2015 decision in Faison v RTFX, the Illinois Appellate Court has now held that the failure to provide a proper receipt for a $10.00 increase in a tenant’s security deposit gave rise to a requirement that the landlord return the entire $600.00 security deposit plus pay a $1,200.00 penalty plus the tenant’s attorney fees. The facts in Faison were that a landlord and tenant entered into a lease in April, 2007, which provided for a security deposit of $590.00. After the initial lease expired, the tenant continued on a month to month basis. The landlord increased the month to month rent from $590.00 to $600.00 in May, 2008 and collected an additional $10.00 security deposit, for which no receipt in the form required by RLTO was given. This happened again in May, 2009. The court held that claims regarding the May, 2008 $10.00 payment were barred by the statute of limitations but ruled that the May, 2009 $10.00 payment was not so barred.

Feel free to contact an experienced Illinois landlord attorney at Logan Law, LLC if you have questions about the handling of security deposits for properties subject to RLTO or any other area of the laws governing landlords and tenants.

The Chicago Residential Landlord and Tenant Ordinance (“RLTO”) applies to all Chicago residential properties in which the owner does not reside or which contain more than six residential units. For landlords who are subject to RLTO, accepting a security deposit means the landlord must literally cross a minefield of possible penalties. The situation is so extreme that it has led a number of Chicago landlords to discontinue the time honored practice of requiring the traditional security deposit in the amount of one month’s rent, in favor of requiring a non-refundable move-in fee usually equal to a fraction of a month’s rent.

The reason for this extreme reaction is that RLTO basically imposes absolute liability in the amount of two times the security deposit, plus the attorney fees of the tenant’s attorney, for violation of each of a variety of technical rules as to the receipt, handling and return of security deposits. The provision of attorney fees for the tenant’s attorney has even given rise to a group of attorneys who make most or all of their income from suing landlords.

The rules are many:

1. Security deposits must be held in a federally insured interest    bearing account in an Illinois financial institution.

2. Security deposits must be in an account completely separate from and not commingled with any funds of the landlord.

3. The name and address of the financial institution holding the deposit must be conspicuously disclosed in the written rental agreement signed by the tenant or if there is not a written rental agreement, by a written notice given to the tenant within 14 days of receipt of the deposit.

4. The tenant must be given a receipt when the deposit is received which specifies the amount of the deposit, the name of the person accepting the deposit, and if that person is an agent, the name of the landlord, the date of receipt and a description of the dwelling unit rented.

5. If a security deposit is retained for more than six months, the landlord must pay interest on the security deposit, at the rate specified by the Chicago Comptroller each year, within 30 days after the end of each anniversary of the beginning of the lease term.

6. When the tenant vacates the dwelling unit, the landlord is required to return the security deposit within 45 days after the tenant has vacated.

The landlord may deduct from the returned deposit any unpaid rent and a reasonable amount to repair damages to the unit. If any amount is deducted for damage, the landlord must deliver to the tenant within 30 days an itemized list of the damages and the estimated or actual costs of repair or replacement. If an estimate is provided, then within 30 days, the landlord must provide copies of paid receipts or if the work is performed by the landlord’s employees, a certification of the actual costs of the repairs.

Feel free to contact an experienced Illinois landlord attorney at Logan Law, LLC if you have questions about the handling of security deposits for properties subject to RLTO or any other area of the laws governing landlords and tenants.