Security Deposit Laws Still Pose Problems For Landlords
The Illinois judiciary recently gave landlords more good reason to abandon security deposits in favor of non-refundable “move-in” fees and mandatory renter’s insurance. In a case involving the interpretation of the Evanston Residential Landlord and Tenant Ordinance (which bears striking similarities to its Chicago counterpart), the Illinois Appellate Court held that a landlord must timely supply the tenant with an itemized list of damages containing the specific dollar amounts of all repairs or face liability under the ordinance, even in instances where the repair costs could not reasonably have been determined within the allotted time period.
Here's what happened: Three college kids sued their landlord for violating the Evanston ordinance by failing to refund their security deposit within 21 days. At trial, the landlord claimed that the tenants trashed the apartment so badly that the repair costs could not reasonably be determined within the allotted time period. In fact, the landlord had timely written the tenants and itemized the damage, indicating that the repair costs were still "TBD.” The trial court ruled for the landlord, but the appellate court ruled for the tenants because the language of the ordinance was crystal clear that the landlord’s only option was to refund the security deposit (minus known and specified repair costs), then sue (or counterclaim) for the damages caused by the tenants.
The ramifications of this case naturally spell more headaches for landlords who require security deposits. Consider the following true story to which we at domu recently became privy: In early 2011, a tenant in a penthouse at one of the most luxurious condominium buildings in Streeterville was hosting some guests whose rambunctious horseplay shattered a massive window 37 stories above the sidewalk. The window was a common element, and the damage was promptly reported to the association’s insurer, whose aggressive adjuster insisted on shopping extensively for quotes. By the time the replacement glass could be located, fabricated, and installed, the tenant’s lease had long since expired, and the tenant was last seen hitting the highway and heading north for Wisconsin. Consistent with the recent appellate court decision, the landlord had no choice but to refund a $10,000 security deposit, knowing full well that it faced well more than $10,000 in subrogation liability to the association’s insurer. So basically, the law forced the landlord to refund the entire security deposit merely the damage the tenant caused was so extensive that the repair cost could not reasonably be determined within the short time period for refunding security deposits under the municipal ordinance. All in the name of stamping out slumlording!
As we at domu see it, the court’s decision incentivizes Chicago and Evanston landlords to join the growing trend by eschewing security deposits in favor of non-refundable move-in fees and mandatory renter’s insurance. Landlords should be cautioned, however, to keep the “move in” fees low (in the $300 to $400 range) in order to be arguably related to the provision of an actual service or the incurrence of an articulable cost. Anything more than this may subject the landlord to a claim that fee is a disguised security deposit for purposes of the Chicago Municipal Ordinance.