Recently, a friend hired me to help her navigate the
pitfalls of becoming a first time landlord in the City of Chicago. With the real estate market in its current
condition, and so many homeowners outgrowing their homes but being “underwater”
in the mortgage and unable to sell, I started thinking there may be many
potential first-time landlords out there.
Because our fair City has some of the most tenant friendly laws on the
books, I also got to thinking these landlords to be could use some help
navigating the potential financial pitfalls awaiting the inexperienced and non-professional
landlord. If you are planning to sublet
your unit or get a roommate to share your space, be aware that for legal
purposes you become a landlord, and these provisions apply to you too. I normally try to keep blog posts short, but
there’s a lot to cover here, so buckle in for the ride…
Does the CRLTO
(“The Ordinance”) Apply to my property?
The Ordinance specifically excludes buildings with six units
or less which are also owner-occupied. There
are other exceptions for hotels and work related lodging, but the
owner-occupied exception is the most commonly applied.
The Lease
There are three things landlords must attach to the
lease. 1) Attach a copy of the CRLTO or a summary; 2) If your building has been cited by the Department of Buildings
(DOB) for Municipal Code violations within the last 12 months, you must attach
a copy of those as well; and, 3) Finally,
include somewhere in the lease contact information for the owner or owner’s
agent where a tenant can direct any formal communications or requests. Building violations can be found online at: https://webapps.cityofchicago.org/buildingviolations/
The Security
Deposit Collection and Interest
The security deposit provisions are some of the toughest in
the Ordinance, so make sure you understand them completely when renting out
your unit. One small misstep can end up
costing you thousands of dollars if you end up with an angry and/or litigious
tenant. 1) Hold all security deposit funds in a separate bank account; 2) The bank must be FDIC insured and operate
in Illinois; 3) The account must be
interest bearing. 4) Collect the deposit in a separate check. You may collect it in the same check with the
first month’s rent IF you put the security deposit portion in your separate
account within 5 business days. The bank
name and address where the deposit is held must be stated clearly in the lease
agreement. For this reason, I recommend
choosing a bank in advance and if possible opening the account before
collecting the deposit so this information can be included in the Lease
Agreement.
Last but not least…
provide tenant with a written receipt for the deposit, which must include the following
items: Your (Landlord) name, Their
(Tenant) name, Date deposit was received, Amount of Deposit and description of
unit deposit is paid for (Address).
Interest rates are decided annually by the City of Chicago and can be
found on their website each January. The 2013 interest rate is 1.023%. Even though the interest paid back will
likely be miniscule, it MUST be paid back to the tenant every year (if they
renew) or at the end of the lease term. Be
sure to fully document the interest
payment, because no matter how small the interest amount is, if you fail to pay
it, you can be held liable for two months’ rent no questions asked. Beware!
Returning the
Deposit
When your Tenant vacates, the deposit must be returned to them
within 45 days of move out, subject
to certain potential deductions. If you’re
deducting, an itemized list of deductions must be presented to the Tenant
within 30 days of move out. If you make repairs you must include either
the actual receipt or a written estimate from a contractor for the specific
repair. Also, landlords can’t deduct for
normal wear and tear, which is anything you would normally do the property on a
yearly basis to maintain the property. Good
examples of this are repainting or cleaning the carpet. You may also deduct any unpaid rent from the
deposit, but this is only allowed at the end of the lease term, not during the
tenancy.
Entry for Repairs
or Showings
Except in case of an emergency, Landlords must give Tenant
two days’ notice in writing before entering the unit. Each violation of this, if proven, can cost
one month’s rent in a lawsuit.
Landlord’s Responsibility
to Maintain Property
As a property owner, you have a duty to maintain a rental
unit according to all provisions of the Chicago
Municipal Code. Illinois residential
leases are also subject to what is known as the Warranty of Habitability, which
in plain English simply means you must maintain the unit in a condition that is
reasonably safe and fit for humans to live in.
Whether you do the repairs and maintenance or hire someone to do them
for you, the bottom line is, don’t ignore repair and maintenance requests or
you may find yourself on the wrong end of a lawsuit.
Notice of Non-Renewal
If, at the end of the initial lease term, you decide not to
renew Tenant’s lease for another year, you must give them 30 days written
notice of your intent not to renew.
Prohibited Lease
Provisions
Certain types of lease provisions are just flat out prohibited
by the Ordinance. Those provisions are
as follows: Waiver of Tenant rights
under the CRLTO; Limitation of Landlord liability under the CRLTO; Waiver of
Written Notice of Termination of Tenancy; Late fees in excess of $10.00 of the
first $500 of rent + 5%/month for any amount over $500; Early lease termination
not by written agreement of both parties.
To put it in plainer terms, the lease cannot contract away any of the
tenant’s legal rights under the Ordinance.
Yes, this is a lot of information! However, I can’t stress strongly enough that
you must master these requirements and follow them to letter. If you have questions on setting up a lease,
complying with the CRLTO, Lease Termination or Eviction the assistance of an
attorney specializing in this area can help you. For just a few hours in fees you can save
yourself the aggravation and expense of unhappy tenants or litigation.
If you’re interested in help with handling one of the issues
above, please contact me at The Scott
Law Office, 312-583-9945, scottemm@gmail.com
or www.scottlawchicago.com.
Happy renting!
