What Landlords Can Do To Protect Themselves From Claims Under The Chicago Residential Ordinance

The RLTO is complex and detailed Chicago ordinance purportedly enacted to protect the rights of Chicago Tenants from overreaching landlords. The theory behind the law is that residential tenants often have no bargaining power and their claims are often so small that they cannot seek relief in the courts economically. For example, if a landlord wrongfully withholds $100 of a $700 deposit, it would cost the tenant more to file a small claims suit then he or she would recover if the suit was successful.

White Heart, Empty Head is not a Defense.

Like much the government does in responses to problems, the City simple rearranged the deck chairs, creating new problems and inequities to replace the ones it perceived needed fixing. The RLTO, with its multiple layers of often contradictory regulation has created a legal trap for the unwary and a burden on all but the most seasoned of professional landlords. The RLTO has been interpreted as a "Strict Liability" statute, meaning that the Landlord's intent or lack of an evil motive is irrelevant. If the landlord is in technical violation of any the Act, the court is required to award the sanctions provided for in the Act related to that section. It does not matter that the Landlord was unaware of a requirement or that the noncompliance was inadvertent.

Some of the sanctions are modest, such as a fixed fine in the amount of $100.00 for failure to attach the official RLTO Summary to a lease renewal. Other penalties are serve and out of proportion to the actual damage sustained by the tenant. For, example, if the Landlord does not issue a receipt to the tenant for the security deposit or does not list the bank where the deposit is held in the lease, the Landlord can be penalized in an amount equal to twice the deposit, even if the deposit has been returned. A tenant who received the security deposit back has suffered no actual damages, but nonetheless may be entitled to a windfall of double the deposit due to an innocuous drafting error in the lease.

The RLTO also requires the Landlord to pay the tenant's attorney's fees. This has spurred the creation of a cottage industry of lawyers who actively solicit RLTO business from defaulting tenants. They create websites with names like, "TenantsRights.com" or "DespoitLaw.com" to attract tenants who are anxious to either avoid eviction or reduce the amount they owe their landlords. They charge and receive substantial fees even if the money recovered for the tenants is small. There are reported RLTO cases where the tenant is awarded damages of $1,200 and the lawyer recovers fees in excess of $10,000.00

What Properties fall within the RLTO?

The short answer is that if you are leasing property in the City other than a unit in an owner-occupied building of six units or less, assume the RLTO applies and make every effort to strictly comply. The RLTO even applies to leases of single family homes and condominiums.

How a Landlord Can Protect Itself.

Once an RLTO suit is filed, it is generally too late to avoid paying the Draconian penalties the law imposes. Thus, the only effective means to avoid becoming the victim of an RLTO lawyer trolling for business it to create the lease documents and administer the lease in a way designed to avoid the claims in the first instance.

This memo is not intended to cover every requirement of the RLTO, but to address and highlight the most common areas where landlords find themselves in trouble.

The Lease.

It all starts with the lease. A well drafted lease can serve as guidepost to RLTO compliance because it will have built into the stock language the information which must be disclosed to the Tenant at the time of the lease signing. If you have a standard form of lease you are using, you would be well advised to have it reviewed by me or another lawyer familiar with the RLTO. For a Lease to Be RLTO compliant it must, at a minimum contain:

  • Management Agent. The name, address and phone number of the person who is responsible for managing the building. This would be the person or company the tenant would call in the event of problems at the site or the need for tenant services.
  • Landlord Agent for Service of Process. If the rent for the property is payable to a limited liability company or other entity other than the management company or identifies a landlord separate from the manager, then lease must contain both the name of the Managing Agent and the name of the person, such as a corporate registered agent who can accept notices, including service of summons, on behalf of the corporate landlord.
  • RLTO Summary. The lease AND EVERY RENEWAL OF THE LEASE must have attached the official summary of the RLTO available on the City website at:
  • http://www.cityofchicago.org/dam/city/depts/dcd/general/housing/RLTOEnglish.pdf It is important that you use the current form. It is updated every two years or so. If you use an outdated form, it is the same as attaching no summary at all and subjects the landlord to a fine plus attorney's fees.
  • Bed Bug Brochure. The landlord must also provide the tenant the informational brochure on bed bug prevention and treatment prepared by the department of health. The brochure is available on the city website at:
  • http://www.cityofchicago.org/content/dam/city/depts/cdph/environmental_health_and_food/BedBugBrochureOct312013.pdf
  • The Name of the Bank Holding the Deposit. The RLTO not only requires that security deposits be held in a dedicated account, the Landlord has to identify the financial institution where the deposit is being held. This provision also applies where a lease has been assigned after the building is sold. The new landlord must send a notice to the tenants when it has received credit for the security deposit indicating where the deposit is held.
  • Security Deposit Receipt. It is not enough to just list the amount of the deposit in the lease. The landlord must issue a separate receipt to the Tenant stating the amount of the deposit and date it was received.
  • Late Fees. The Lease can charge a late fee for rent but the amount is limited to $10.00 on the first $500 of rent and 5% of the rent over $500.00
  • What the Lease CANNOT Include: The RLTO prohibits certain provisions and makes it unlawful for the landlord to try and enforce them. These provisions should be stricken from the landlord's standard form of lease and include:
    • Requiring the payment of the landlord's attorney's fees.
    • Confession of judgment for unpaid rent.
    • Provisions waiving the landlord liability for torts or other damage
    • Waivers of the requirement to serve a 5-day notice.
    • Waiver of any provision of the RLTO.
    • Discounts for prepayment of rent.
    • Prohibition on subleasing. The landlord must accept a reasonably qualified subtenant if the tenant tenders one to the landlord.

Interest on the Deposit. The City website lists the interest rate the landlord must pay on security deposits based on the six-month CD rate: http://www.cityofchicago.org/city/en/depts/dcd/supp_info/security_depositinterestrates.html

As of March 1, 2015, the rate is .01%. [This is not a typo -- the rate is one-tenth of one percent. The interest due the tenant on a $1,000 deposit after the first year is 10¢.] The interest must be paid to the Tenant annually. Thus, if a lease is being renewed, the interest should be tendered, even if it is just a nominal amount because the penalty for nonpayment is an amount equal to twice the deposit. In other words, a landlord who fails to pay a tenant the 10¢ due on his or her $1,000 deposit can be subjected to a $2,000 fine.

Return of Security Deposit.

The security deposit must be returned to the defendant within 45 days of the tenant moving out of the unit even if the tenant move out before the end of the lease term. Certain expenses can be deducted, but require advance written notice. The notice must be sent within 30 days of the tenant moving out. If the tenant did not provide a forwarding address, then the notice can be sent to the last known address. The items the landlord can withhold from the deposit, upon written notice to the tenant, include:

  • Unpaid Rent.
  • Reasonable costs to repair damage to the unit not falling into the category of "reasonable wear and tear". The landlord must furnish paid receipts for the repairs to the tenant if it holds any of the deposit back. If the holdback was based upon an estimate, the landlord has to have the work done and provide the tenant with receipts within 30 days of the holdback notice (or 60 days from when the tenant moved). The ordinary "wear and tear" clause of the Act can be a trap for the unwary. General cleaning or patching of nail holes can be expected after any tenant moves out and should not be deducted.
  • The Act does not expressly allow for deduction for the cost of reletting the unit. Thus, even if the lease does provide that if the tenant breaches, the landlord can recover the costs of reletting (such as commissions or advertising), the safer course is to refund the deposit and sue the tenant for the unpaid costs if they are substantial.
  • The penalty for withholding sums from the deposit without strict compliance with the notice requirements (including furnishing of paid receipts) is a fine equal to twice the deposit.

Landlord Access to Units: The Landlord must give the tenant 48 hours advance notice before accessing the unit for repairs or inspection except for emergencies. The time for access is limited to the hours between 8:00 a.m. and 8:00 p.m. The landlord may show the apartment for lease in the 60 days before the term ends on 48 hours' notice. Related to this, the landlord must give the tenant at least 30 days' notice prior to the termination date of the lease if the Landlord does not intend to renew the lease.