When it comes time to renting an apartment to a new tenant, landlords and property managers are advised to follow a few critical steps: screen prospective tenants by conducting background checks and/or calling references, check a person’s credit, have them sign an iron-clad lease that protects your financial interests, and collect a security deposit in the event the tenant later causes damage. By and large, this is standard operating procedure for most owners.
That’s why it came as such a surprise when the Chicago Association of Realtors (CAR) reversed course by advising landlords to stop requiring security deposits.
At the heart of the recommendation is the Chicago Residential Landlord and Tenant Ordinance (CRLTO), a local law first adopted in 1985 and designed to govern relations between renters and their landlords. The ordinance has gone through several iterations over time, and now many landlords believe the rules and regulations designed to protect renters’ rights have simply gone too far. “[The ordinance] is impossible to comply with, and it puts our members at risk,” explains a CAR spokesperson.
The CRLTO’s strict guidelines include the timing and acknowledgement of specific disclosures, regulations regarding how a security deposit is collected and held, and procedures governing how much notice a landlord must give before entering a unit to conduct repairs. Any slight deviation in what’s outlined in the CRLTO can cost landlords six-figure settlements in a Cook County court of law.
Three separate class action lawsuits were filed against Chicago landlords under the CRLTO in recent weeks, piling onto a handful of class action lawsuits initiated this fall.
What’s more, landlords have been given hardly any leniency by the courts—even when a landlord has made a good faith effort to comply with the CRLTO but made an honest mistake.
Case in point: Horizon Group Management was forced into Chapter 11 bankruptcy protection in 2014 after a North Side tenant accused the company of shortchanging her $1.40 in interest on a security deposit and failing to provide her a porch safety disclosure as required by the ordinance. Despite four years of litigation, in which Horizon ultimately agreed to pay the tenant $45,000 in damages, the court went further by requiring the company to also pay $833,455 toward the Plaintiff’s attorney fees.
In another case, a Chicago landlord increased the security deposit he collected by $10.00 upon signing a third year lease with an existing tenant. In what amounted to a trivial mistake, the landlord failed to give his tenant a new receipt, and the court determined that the receipt given two years prior to acknowledge payment of a security deposit did not qualify under the CRLTO. The court ordered the landlord to return the tenant’s security deposit as well as damages equaling double the deposit, plus interest.
The severe ordinance differs from the law governing the rest of the state, in which tenants have to prove the landlord willfully broke the law. In Chicago, a tenant only has to prove that the law was broken.
“[Landlords] certainly can go into court and defend themselves, however most of the time these cases are pretty cut and dry,” says Richard Magnone, a Chicago attorney specializing in landlord-tenant law. “If landlords try to interpret the ordinance themselves, then chances are they can run afoul of it.”
Lawsuits under the CRLTO have become so prevalent that some are questioning whether the ordinance needs a complete overhaul.
Absent of that, many landlords forego a security deposit and instead charge tenants non-refundable move-in fees—which courts have deemed legal under the CRLTO—in an attempt to reduce their liability under the same ordinance. It’s shifting the burden to otherwise good tenants who wouldn’t have caused damage but now have to foot an upfront bill, often in addition to first and last month’s rent and realtor fees.
Not taking a security deposit only offers landlords some protection under the ordinance; there are still many other complex guidelines to abide by. It’s making some question whether being a landlord in Chicago is even worth the risk.
“For a long time I’ve been advising my landlords who don’t want to be professional landlords to sell their properties and get out of Chicago,” says Magnone.
A less drastic solution?
Chicago property owners—especially those operating at a smaller scale or who do not manage their properties full time—can consider hiring a property manager if they haven’t done so already. Professional property managers understand the intricacies of local regulations. They have the tools and resources necessary to manage properties and tenant relationships. In today’s litigious society, hiring a property manager can give Chicago landlords the assurance they need that their property interest will be well protected.
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