Investing in residential real estate in the City of Chicago can be a financially and professionally rewarding experience. However, as with any investment, it is important to learn how to protect your Chicago real estate investment by familiarizing yourself with all applicable rules and regulations. The Chicago Residential Landlord and Tenant Ordinance (the “RLTO”) is one such relevant, and often overlooked, local regulation that applies to most landlord/tenant relationships in Chicago. The RLTO is in addition to other applicable laws regarding such relationships. The RLTO defines the rights, duties and obligations of both landlords and tenants in each such relationship. This article highlights and summarizes a few of the noteworthy provisions of the RLTO.
Does the RLTO Apply to You?
The RLTO governs any rental agreement, whether oral or in writing, that concerns the rental of most homes or apartments in Chicago. One exception to this rule, among others, is that the RLTO does not apply to the rental of a unit located in an owner-occupied building containing six units or less. Thus, if you are a landlord seeking to rent a unit to a tenant in a building in which you do not reside, or in a building containing seven or more units in which you do reside, your landlord/tenant relationship is subject to the requirements of the RLTO.
Security Deposits and the RLTO
Chicago landlords frequently, and often inadvertently, violate the RLTO’s stringent requirements on a Chicago landlord’s treatment of security deposits received from tenants. First, anytime a Chicago landlord subject to the RLTO receives a security deposit from a prospective tenant, the landlord must provide the tenant with a receipt signed by the landlord indicating the amount of the security deposit, the name of the landlord, the date on which it is received, and a description of the leased unit. Second, the landlord must be hold the security deposit in a separate federally-insured interest bearing account; security deposits must not be commingled with any of the landlord’s assets, including monthly rental income. A Chicago landlord that holds a security deposit for more than six months is required to pay interest to the tenant accruing from the inception of the lease term at an interest rate prescribed by the RLTO. Such interest must be paid to the tenant within thirty days after the expiration of each twelve month rental period.
Although the RLTO permits a landlord, upon the expiration of a lease, to apply the security deposit toward any unpaid monthly rent, a landlord may only apply the security deposit (or portion thereof) toward repairing damages caused by a tenant (normal wear and tear excluded) if the landlord adheres to certain procedures prescribed by the RLTO. For example, the RLTO requires the landlord to provide the tenant, within the timeframe established by the RLTO, with either a copy of the paid receipt for that repair or a certified statement setting forth the cost of such repair. If a landlord fails to comply with any RLTO requirement relating to the treatment of security deposits, the tenant is not only entitled to recover the entire security deposit, a court can award the tenant damages in an amount equal to two times the security deposit, as well as the reasonable attorneys’ fees incurred in connection with enforcing his/her rights under the RLTO.
Terms and Conditions of Lease Agreements Regulated by the RLTO
Numerous terms and conditions of a lease agreement are regulated by the RLTO. Each lease agreement governed by the RLTO must have a summary of the RLTO attached to it. Failure to do so automatically subjects a landlord to a penalty of $100.00, in addition to other damages sustained by the tenant arising from such violation, including reasonable attorneys’ fees. The RLTO also limits the amount a landlord can charge for a late fee for a tenant’s failure to pay monthly rent in a timely manner. In particular, any lease provision that charges a tenant a penalty in excess of $10.00 per month for the first $500.00 in monthly rent plus 5% per month for any amount in excess of $500.00 in monthly rent for the late payment of rent is unenforceable. Likewise, a landlord is barred from providing a tenant with a discount greater than the amount specified in the preceding sentence for remitting monthly rent to the landlord within a certain timeframe.
Notably, although a tenant can recover attorneys’ fees for enforcing his/her rights under the RLTO, a landlord cannot recover attorneys’ fees incurred in connection with instituting an eviction action. Further, a landlord must disclose to the tenant in writing the existence of any federal, state or local code violations affecting the subject property prior to the execution of the lease. These are just a few of the terms and conditions the RLTO imposes on Chicago landlords.
In summary, it is crucial that all Chicago landlords understand the requirements of the RLTO. As explained, the RLTO requirements are tricky and often violated unintentionally. Given the significant penalties imposed by the RLTO, we encourage you to work together with your attorneys to ensure compliance with the RLTO and protect your Chicago residential real estate investments.