Is It Time to Change Security Deposit Laws?

I've handled many, many cases involving landlord-tenant disputes in
Chicago, and one of the most frequently litigated (or settled) areas of
the law among landlords and tenants is the security deposit portion of
the Chicago Residential Landlord Tenant Ordinance. And after representing both landlords and tenants, it's become more clear than ever that it's time to amend these statutes.

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To
review, the Chicago Residential Landlord Tenant Ordinance provides
remedies for tenants -- and landlords -- for violations of lease terms
and other city ordinances. The Ordinance also explains
often-misunderstood portions of lease agreements. The Ordinance is
extremely helpful for both landlords and tenants.

However, the
most punitive portions of the Ordinance deal with security deposits, and
the landlord's obligations with respect to security deposits. These
duties include providing annual interest payments, statements of
interest, the name and location of the bank holding the deposit, and so
forth. In some instances, the punishment for violating these sections of
the Ordinance is double the security deposit. Interest and attorney's
fees are also applicable in certain violations.

The purpose of
these harsh punishments has been to ensure that landlords don't
co-mingle or misuse tenant deposits. This is viable reasoning. After
all, I know of landlords who would make some good money by pooling
deposits together and investing wisely. However, it's not the violation
itself that should be amended, but the punishment.

Double the security deposit plus interest and attorney's fees is excessive, even if the courts have ruled that it is not.
This is reward is especially harsh today, given the fact that many
potential commercial real estate investors are electing to buy property
outside of Chicago, citing the Ordinance as a reason.

It's true
that all of this can be resolved if the landlord simply follows the
Ordinance and complies with the law. However, the impact of such
punitive legislation is starting to hinder the real estate marketplace
in Chicago. In the end, for what usually amounts to the contents of a
tip jar, property owners are on the hook for, generally, thousands of
dollars and lengthy litigation.

Comments

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  • Since you point out that one can fairly easily comply with the law by putting the money in a trust account, the penalty for not doing so seems justified. If the litigation is over damage found after the lease term, that's a different matter. However, if commercial real estate investors refuse to invest because they fear they will be caught taking the security deposit, maybe they shouldn't.

    When I lived in New York state, one time everyone got a notice of a registered letter at the post office. Turns out that the landlord had to do that, just to give notice that the bank holding the trust had changed.

    Finally, even though the lease says that the security deposit is not the last month's rent, they can't evict you once you have left.

  • Every business has its requirements The concept of the Chicago Residential Landlord and Tenant Ordinance ("RLTO") as it relates to security deposits is to MAKE CERTAIN that landlords understand and know and act accordingly in regard to the security deposit being the tenants' money. So, what's so tough about compliance?

    1. Put the security deposit in a separate account.
    2. Note on the lease what financial institution the deposit is in.
    3. Give a proper receipt...sub-section (b) of 080 of the RLTO tells you what information you need.
    4. Pay interest every twelve months.
    5. Compute the interest properly.
    6. When the lease is over, and if you take money out of the security deposit for damages, follow the dictates of the RLTO on when, what and how.
    7. If title to the building changes, comply with the notice requirements.

    The RLTO is not the Internal Revenue Code by a long, LONG shot!

    The biggest problem today with even thinking about changing the RLTO, and there are many lawyers and Not-For-Profits that help tenants and might be happy to talk about mutual changes of benefit, is that the landlords and many of their lawyers are not civil, are hateful and spiteful, and will not even discuss what changes are needed to help tenants who more then deserve them....such as with illegal lockouts, turn-off of heat and hot water and electric in the middle of the winter....and even causing tenants to be arrested for less then proper reasons.

    I have personally been down these roads three times or more...on behalf of the Metropolitan Tenants Organizations, as involved with the Lawyers Committee for Better Housing and as an active practitioner int he landlord and tenant area....and you may not believe it, but even as recently as the summer of 2010, when some changes to the RLTO were made...the landlords and even their lawyer treated tenant lawyer like we had some form of terrible, communicable disease.

    Time for a change? Perhaps....but all landlords are not angels....and is is it unreasonable to think that changes on both sides of the fence are needed? Or, are the landlords now too much like Tea Party Republicans who refuse to discuss what they do not want to discuss an demand what they want or ELSE!??

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