The most common pitfalls for apartment landlords under the Chicago Residential Landlord and Tenant Ordinance (CRLTO) stem from the collection and administration of security deposits. Most Chicago residential rentals are subject to the CRLTO's rules. The most common exception is owner-occupied buildings containing six or fewer residential units. Two Illinois laws also regulate security deposits: the Security Deposit Interest Act, 765 ILCS 715/0.01, and the Illinois Security Deposit Return Act, 765 ILCS 710/.01. The obligations imposed under the CRLTO are more stringent than those under Illinois law.
How Does the Security Deposit Work?
A Chicago landlord that collects a security deposit must:
- Provide a signed and dated receipt for security deposit funds at the time the funds are received
- Hold the funds in a federally insured, interest-bearing account at a financial institution
- Segregate the funds into a separate account within five days of receipt
- Pay annual interest according to rates set by the City of Chicago
- Refund the security deposit in a timely manner (minus qualified deductions)
If deductions are made, provide a statement of damages, evidence of tenant’s damage, estimated cost of repair, or actual cost of repair, within 30 days of the termination of the lease.
Let’s examine these requirements in a bit more detail.
Do I Need to Give a Security Deposit Receipt?
Suppose the CRLTO regulates your apartment, and most Chicago residential rentals are. In that case, you must provide your tenant with a security deposit receipt (or rental deposit receipt) that includes certain types of information mandated by the CRLTO. A free security deposit receipt form is available on the Domu Security Deposit form page. Domu is providing the example security deposit receipt form as a courtesy. Still, it remains your responsibility to confirm that the information required by the CRLTO is included in each form.
What Does a Security Deposit Cover & What Are Qualified Deductions?
Landlords may make deductions from the security deposit as compensation for:
- unpaid rent which was not validly withheld by the tenant in accordance with federal, state, or local law, OR
- the reasonable cost of repairing any damage caused by the tenant (or any person under the tenant’s control), reasonable wear and tear excluded.
If the landlord makes deductions for repairs, they must deliver an itemized statement of the damage caused by the tenant and the estimated or actual costs of the repairs within 30 days of lease termination.
What Is the Annual Interest Rate for Security Deposits?
The City of Chicago’s City Comptroller sets the minimum Chicago security deposit interest rate for residential rentals regulated by the CRLTO. The City Comptroller set the minimum security deposit interest rate at 0.01% for leases signed in 2022. You can read more about the current year’s interest rate and previous years’ rates here.
Are Security Deposits Returned?
Assuming tenants don’t break the apartment lease or do any damage to the rental beyond ordinary wear and tear, local regulations require the return of the security deposit in a timely fashion. Failure to comply with these rules can be costly.
What Are the Pros & Cons of A Move-In Fee vs. Security Deposit
For tenants, a security deposit is preferable to a move-in fee. The deposit remains the tenant’s property even while it is in the landlords’ hands. Assuming the tenant doesn’t do any significant damage to the premises or withhold the rent improperly, the tenant will get that deposit returned. On the other hand, a move-in fee is money that the tenant will never see again – as soon as the tenant pays the move-in fee, it becomes the landlord's property.
Though security deposits incentivize tenants to take care of the property, landlords generally prefer move-in fees because they aren’t regulated by the CRLTO or Illinois law. There are no administrative hassles associated with collecting them. But landlords should be careful to label the fee as “nonrefundable” on the lease, or tenants might later claim that they believed it to be a refundable security deposit.
A few years ago, when a tenant claimed that she was entitled to a refund of a move-in fee, the Illinois Appellate Court explained that the rules pertaining to security deposits could apply to move-in fees in certain circumstances – meaning that the landlord would be compelled to return the misnamed “fee,” if the “fee” was operating like a security deposit. To avoid this outcome, set the move-in fee to less than half the monthly rent and describe the fee as a non-refundable charge.
According to listings on Domu, a small minority of landlords charge both a move-in fee and security deposit, less than half of Chicago’s landlords majority charge a move-in fee-only, and more than half of Chicago landlords list on Domu charge move-in fees.