Most landlords think of a security deposit exactly how it’s entitled – security. If the tenant damages the property moving in or out, or even doesn’t pay the last month’s rent, the landlord has access to funds that can address the problem. But more often than not these days for Chicago landlords, this security acts as a huge risk for landlords because of the tenant-friendly Chicago Residential Landlord Tenant Ordinance (the “CRLTO”). Even the smallest CRLTO violation can subject the landlord to liability of at least two times the security deposit, plus attorneys’ fees and landlords are left questioning whether this risk is worth the security.
While our firm does not advise landlords to take a security deposit in Chicago, we find that it is still commonly done in most residential leases. As such, landlords must be prepared to comply with every requirement of the ordinance if they choose to hold such a deposit. Although there are many factors to take into account, the following is a list of essential requirements that landlords must follow in detail in order to comply with the CRLTO.
Provide a receipt to the tenant and get a counter-signature.
Upon receiving the security deposit, provide the tenant a written receipt, signed by the tenant, which discloses (a) the amount of the security deposit; (b) the name of the person who received the deposit; (c) the name of the landlord; (d) the date on which the deposit was received; (e) and a description of the leased premises.
Disclose location of bank holding the Deposit.
Disclose in the written lease the name and address of the financial institution where the security deposit is held. If an oral lease, provide this information in writing within 14 days of receipt of the security deposit.
Keep Deposit separate from other assets.
Avoid commingling by keeping the security deposit with an Illinois financial institution’s federally insured, interest-bearing account that does not hold any other assets of the landlord.
Pay annual interest.
Pay annual interest within 30 days after the end of each 12-month rental period at a specified rate for deposits and prepaid amounts held by the landlord for more than six months. While this amount is nominal, and will likely be less than $1.00, it is a statutory requirement and must be paid.
Timely provide receipts for repair deductions.
If making deductions for repairs, provide an itemized statement of the estimated or actual cost to repair the damage allegedly caused by the tenant directly to the tenant or mail to their last known address within 30 days after the tenant vacate the leased premises. If actual costs are known, the landlord must enclose copies of paid receipts with the itemized statement. If estimated costs are provided, the landlord must provide the tenant with paid receipts within 30 days after it provided the estimates.
Timely return the Deposit, if any amounts left after deductions.
Refund the security deposit (minus qualified deductions) 45 days after the tenant vacates the leased premises or within 7 days after the date tenant provides notice of termination following a fire or other major casualty.
As there are many other “best practices” for landlords to consider, including additional requirements of the CRLTO and Illinois laws beyond Chicago, please contact Rudolph Kaplan LLC for any further questions regarding security deposits.
Photo by Rental Realities.