Landlords win security deposit cases with the same frequency that the Cubs and the White Sox win World Series titles. But it did happen just recently, in case you missed the victory parade down Michigan Avenue.
In Hundley v. WPD Management, LLC, 2023 IL App (1st) 230075, the Illinois Court of Appeals reached the eminently reasonable, common-sense conclusion that landlords cannot be sued for failing to provide a summary of the security deposit provisions of the Chicago Residential Landlord and Tenant Ordinance (the “CRLTO”) to tenants from whom no security deposit is taken or held.
The CRLTO imposes numerous obligations on landlords who take security deposits from tenants, with technical violations often resulting in the infliction of harsh penalties, particularly when cases are filed as class actions. In other words, if you’re a landlord who requires security deposits, one false move and you’re a goner. This explains why only a small percentage of landlords take security deposits and instead require non-refundable move-in fees, a practice that we at domu strongly encourage.
As a refresher, landlords who demand and accept security deposits must, among other things:
1) hold the security deposits in a federally insured interest-bearing in account in a bank, savings and loan association or other financial institution located in Illinois;
2) not commingle the funds in the security deposit account with any of its own assets;
3) clearly and conspicuously disclose in the lease the identity of the financial institution where the funds are or will be deposited and notify the tenant within 14 days if the funds are transferred to a different institution;
4) provide the tenant at the time the security deposit is tendered a receipt indicating the amount of the deposit, the name of the person who received it (or for whom it was received), the date on which the deposit was received, and a description of the dwelling unit;
5) pay interest on any security deposit held more than six months at a rate published by the city comptroller, with such interest to be paid or credited to the tenant within 30 days after the end of each twelve-month lease period;
6) return the security deposit to the tenant with interest and within 45 days after the lease expires (or within 10 days if the tenant terminates the lease after a fire or other casualty), provided, however, that the landlord may retain funds to compensate for unpaid rent not validly withheld by the tenant or for repairs to the unit (although, in the latter case, the landlord must strictly comply with rules requiring notification to the tenant within 30 days of the costs of any repairs).
(Oh, and by the way, successor landlords remain liable for security deposits collected from prior landlords.)
In addition, a completely separate provision of the CRLTO requires Chicago landlords to provide tenants with a summary of “the respective rights, obligations and remedies of landlords and tenants with respect to security deposits, including the new interest rate as well as the rate for each of the prior two years,” both at the inception of any lease and at the time of any renewal. If a landlord fails to tender the security deposit summary, then the tenant may terminate the lease on thirty days’ notice and recover $100.00 in damages, plus attorneys’ fees.
In the Hundley case, a tenant’s lawyer filed a class action against WPD (a highly competent and reputable property management firm on the south side of Chicago), alleging that WPD failed to provide a copy of the security deposit summary to certain tenants. As it turned out, however, WPD never collected security deposits from these tenants in the first place (consistent with the domu advice). The affected tenants would obviously not have objected to an award of $100 for the alleged infraction, but the case was obviously filed because the plaintiff’s lawyer was chasing a fee.
In a completely sensible decision that can nonetheless be described as “surprising,” given the hostility to landlords in this town, the appellate court ruled that the tenants had no standing to sue because they had not been injured, since they never gave a security deposit in the first place and therefore the delivery of the security deposit summary would have been a “useless act.” Absent an actual “injury,” the court ruled, there was no viable claim to be pursued.
Accordingly, landlords who do not take security deposits do not need to hand out the security deposit summary and can save themselves from the trouble of assembling one more piece of paper at a time when residential tenant laws have become so onerous that every lease now comes with dozens and dozens of disclosures and pamphlets which, in their collective totality, make residential leases even less desirable to read (and probably less likely to be read) than they were before.
As a post-script, your friends at domu must repeat (as usual) that the CRLTO does not apply to all residential leases in Chicago (though it does apply to most of them) and that this article therefore applies only to landlords governed by the ordinance. The exemptions, in case you’re interested, are set forth in Section 5-12-020 of the Chicago Municipal Code.
Learn more about Chicago Security Deposits.