The residential rental market in Chicago has skyrocketed over the last several years, and even with thousands of new rental units slated to be built this year, experts are not predicting a significant decline in the cost to rent an apartment. This is a strain on the budgets of renters for sure, but for landlords and those looking to invest in rental property, it is an opportunity. However, landlords looking to capitalize on that opportunity need to be familiar with Chicago’s Residential Landlord and Tenant Ordinance (“RLTO”). The RLTO contains important protections for Chicago renters, but also many requirements which demand strict compliance, and which can be costly even to well-intentioned landlords. For anyone looking to get into the rental business, and even existing landlords who haven’t reviewed the RLTO recently, it may be time to update your lease documents and rental practices.
A landlord can violate the RLTO merely by using the wrong form of lease. For example, a rental agreement subject to the RLTO cannot contain a penalty for late rent payments in excess of $10 per month plus 5% of the rent in excess of $500.00. (RLTO, §5-12-140(i)) A rental agreement also cannot contain a provision requiring a tenant to pay the landlord’s attorney’s fees in the event of a lawsuit arising out of the lease. (§5-12-140(f)) A summary of the RLTO (available on the City of Chicago’s official website) must also be attached to the rental agreement (§5-12-170) Many landlords buy form leases at an office supply store, or look for a free download on the web. While RLTO compliant form leases do exist, an unsuspecting landlord is more likely than not to find one containing provisions that violate the RLTO.
A landlord’s treatment of the tenant’s security deposit is another common problem. Among other requirements, a landlord must provide a receipt for the security deposit; must hold the deposit in a federally insured, interest bearing account in a bank in Illinois, not comingled with the landlord’s other assets; and must pay or credit interest to the tenant within 30 days after the end of each 12-month rental period. (§5-12-080)
Penalties for mishandling the security deposit can equal two times of the amount of the deposit held by the landlord, plus attorney’s fees. As recently confirmed by the appellate court in Faison v. RTFX, Inc., 2014 IL App (1st) 121893, the provisions of the RLTO are strictly enforced. Thus, even a technical violation, such as a landlord innocently forgetting to pay a few pennies in interest within the 30-day window, can result in thousands of dollars in damages.
My experience as both a landlord and an attorney representing landlords has been that maintaining good relationships with tenants can help to avoid running into trouble with the RLTO. A tenant who feels that his or her landlord is responsive and treats them fairly is unlikely to file a lawsuit over a technical RLTO violation. However, even good landlord-tenant relationships can turn sour. Most RLTO cases I see begin with an eviction filed by the landlord. Violations of the RLTO can be used as leverage by a tenant under threat of an eviction, resulting in the landlord having to pay statutory damages and attorney’s fees out of pocket, or agreeing to provide months of free rent just to settle a claim. Neither outcome is welcome to a landlord who is relying on income from a rental unit.
Fortunately, these problems can be avoided by ensuring that your lease and rental practices as a landlord are compliant with the RLTO. As is often the case, an ounce of prevention is worth a pound of cure—for landlords, this means ensuring RLTO compliance from the beginning can save a lot of trouble and expense down the road.
Mark L. Evans, Business Law Partner