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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.
guest says
This article must have been written by a renter who wants to eliminate security deposits because even in the situations presented you always require a security deposit. If anything you would require a security deposit, move in fee and renters insurance. While you may not be able keep all the security deposit to cover damages, you can charge for estimates and repairs for known damage. The case for charging both a move in fee and a security deposit is that they are two separate fees and as such both maybe charged without fear of breaking the city ordinance as long as the move in fee is a reasonable amount. Another reason to require a security deposit is that if the tenant is late with the rent or there is an issue of non payment you will at least have one month covered out of the 2 months it takes to get an eviction in Illinois. While I agree that security deposits are a pain they are serve a vital psychological function both for the landlord and the tenant. For the landlord it provides peace of mind that the tenant has that threat of loss and for the tenant it is the possible loss of the deposit that keeps them in check.
Andrew says
Your arguments are very sound, and your point about applying security deposits to unpaid rent is a good one. Ideally, however, the move-in fee serves as a form of self-insurance. Because it's non-refundable, the landlord hopefully collects enough move-in fees from renters concerned about good relations, not getting sued, not blemishing their credit history, etc. to cover the damage caused by tenants who are careless. In many instances, as when condominium owners rent their units, the renter's insurance covers all the interior contents, making it hard for the landlord to sustain a catastrophic out-of-pocket loss. Landlords who accept security deposits are often at-risk to lawsuits with draconian penalties. When the cost of litigation is added to the mix, the risks inherent to security deposits are materially increased. In any event, each case is unique to its own circumstances, so we at domu do not advocate a one-size-fits-all approach. instead we hope to make landlords aware of all possible options.
guest says
guest, please.
A psychological barrier is just that: psychological. It is absolutely no guarantee of anything. small landlords consistently get boned by security deposit laws: my favorite anecdote is a homeowner who rented their own coach house. the landlord refunded the deposit in full and paid security deposit interest in full at move out (not every year, as is required) because they didn't know that interest had to be paid every year. Tenant maliciously sued. Although the landlord argued it was their only rental apartment and on the same property plot (for an RLTO exemption as owner-occupied) the court ruled that since the coach house was a different structure and not attached to the house itself, the RLTO applied, and double damages were imposed.
Yeah, security deposits are a nice thought. They aren't a nice reality under local ordinance. "I'm a knd, private landlord just renting out my coach house!" didn't go anywhere at all in this situation. It guarantees nothing and exposes the landlord to incredible liability.
But your comment is nothing I haven't heard from dozens of private landlords before. Once burned, twice shy. Guess you just need to be burned first to understand the warning of this post.