Can a Security Deposit Be Used For Unpaid Rent in Chicago?

15 Replies

Hello Chicago Landlords, 

I just read this today! This is great to know, as most of attorneys have always told me that the security deposit cannot be used towards the last month rent, even when the tenant did not pay his last month of rent.

Do you ever used the security deposit as the last month of rent? Please share anything that will help our BP community!

Can a Security Deposit Be Used For Unpaid Rent in Chicago?

By Aaron Krolik on June 18th, 2013

Posted in Leases, Rental Agreements, Security Deposits

The Security Deposit and Last Month’s Rent Myth – Exposed!

In Chicago, 99% of residential rental agreements contain a provision that a tenant’s security deposit may not be used for payment of rent, including the last month’s rent. Since the beginning of time, this provision has been included in form leases, favored landlords, and confused tenants. Go ahead check your lease now – do you feel better? Was I right?

The question still remains unanswered (until now): May a Chicago tenant legally use their security deposit for payment of their last month’s rent (or any rent) regardless of their signed rental agreement?

The simple answer is “yes.” Now, we need to look at the law.

First, pursuant RLTO Section 5-12-140(a), no Chicago rental agreement may provide that the landlord or tenant agrees to waive or forego rights, remedies or obligations provided under this chapter.

Second, pursuant to Chicago RLTO Section 5-12-080(d), deductions may be made to a Chicago tenant’s security deposit for only two (2) things: (1) any unpaid rent which has not been validly withheld or deducted pursuant to state or federal law or local ordinance ; (2) a reasonable amount necessary to repair any damages caused to the premises, reasonable wear and tear excluded.

Based on a clear reading of RLTO Sections 5-12-080(d)(1) and (2), a Chicago landlord has the right to use a security deposit for unpaid rent and the tenant has that same right. Under the Chicago RLTO, the landlord’s “remedy” for non-payment of rent by a tenant is to deduct from the security deposit.

Now the punch line: The infamous lease provision disallowing use of a security deposit for payment of rent effectively waives and foregoes the rights, remedies, and obligations set forth in the Chicago RLTO 5-12-080(d)(1) as stated above. RIGHT?!

Pursuant to the Chicago RLTO, a provision such as this is unenforceable and If the landlord “attempts” to enforce this provision a tenant may recover two (2) months’ rent as penalty, plus reasonable attorneys fees, and costs. This is no joke and Judges are enforcing this section of the RLTO against Chicago Landlords.

If your Chicago Landlord is unlawfully preventing you from using your security deposit to pay for rent, please Contact Us today.

- See more at: http://securitydepositlaw.com/blog/can-a-security-...

Wow.  I am glag I don't live in Chicago.

So using his logic a tenant can use the secrity deposit for rent any time he wants?

@Lumi Ispas  

We have a similarly written law here, but there has been interpretation - by the Office of the Rentalsman - that the security deposit can only be accessed after the end of the tenancy {the Rentalsman actually holds the deposits in-trust} when it can be used to offset past-due amounts (rent, utilities) and the cost of repairs or cleaning.

What is the case precedent in Illinois?

@Adam Anderson   apparently yes. Until now, I always advised my clients and tenants that the last month of rent has to be paid in full and the deposit, which we hold in a separate, interest baring account, will be returned to the tenant with interest or have a portion applied towards damages created by the tenants with a full, detailed explanation and copy of a contractor invoice.

As you can see, if an owner deviates even a bit from this law, or if the owner used the deposit and did not keep it in a separate checking account, then the tenant can get the equivalent of two months of security deposit and attorney fees.

This article was written by an attorney that specializes in representing tenants.

@Adam Anderson , I just learned that the tenant could use the deposit towards rent. This is news to me.

@Lumi Ispas  I don't understand because the RLTO in context reads:

"the LANDLORD may deduct from such security deposit or interest due thereon for the following: (1) any unpaid rent which has not been validly withheld or deducted pursuant to state or federal law or local ordinance;".

1) So the explicit wording seems to make deductions a Landlord right, rather than a Tenant right that is unlawfully waived by the subject lease provision.   

2) Also, if a lease term requires that a security deposit be paid, then a tenant can just void that term by skipping the first months rent payment in favor of the deposit.

3) Finally, Tenant application of security deposit to rent could furthermore invalidate any 5-day notices served prior to exhaustion of the security deposit.

The article author appears to be an accomplished tenant law attorney.  So maybe I am missing something here?

Anyhow, the current consensus seems to be not to collect a security deposit in the first place.  

Originally posted by @Dooreuhn Cee :

Anyhow, the current consensus seems to be not to collect a security deposit in the first place.  

Not sure I would agree there.  You want something in the side-drawer to mitigate the situation when you have a tenant escape into the wilds of the night leaving mayhem to greet you in the light of day.   

For us, the key is to invoice tenants for damages or service calls as they occur and to be on-top of late rent.

  

a friend of mind in Indiana requires a security deposit and first and last months rent up front.

Working for him so far

Originally posted by @Dooreuhn Cee :

@Lumi Ispas I don't understand because the RLTO in context reads:

"the LANDLORD may deduct from such security deposit or interest due thereon for the following: (1) any unpaid rent which has not been validly withheld or deducted pursuant to state or federal law or local ordinance;".

1) So the explicit wording seems to make deductions a Landlord right, rather than a Tenant right that is unlawfully waived by the subject lease provision.   

2) Also, if a lease term requires that a security deposit be paid, then a tenant can just void that term by skipping the first months rent payment in favor of the deposit.

3) Finally, Tenant application of security deposit to rent could furthermore invalidate any 5-day notices served prior to exhaustion of the security deposit.

The article author appears to be an accomplished tenant law attorney.  So maybe I am missing something here?

Anyhow, the current consensus seems to be not to collect a security deposit in the first place.  

 I agree with your interpritation. It sounds like this attorny has used their interpretation in front of a Judge, and has won. I guess te lesson is consult your attourny. 

That's why I sold my only rental and have no intention to get back in landlording business. To encourage deadbeats and actually criminals is just more then I can stand.

Originally posted by @Roy N. :
Originally posted by @Dooreuhn Cee:

Anyhow, the current consensus seems to be not to collect a security deposit in the first place.  

Not sure I would agree there.  You want something in the side-drawer to mitigate the situation when you have a tenant escape into the wilds of the night leaving mayhem to greet you in the light of day.   

For us, the key is to invoice tenants for damages or service calls as they occur and to be on-top of late rent.

  

 I should modify that to say, the consensus in Chicago, is to skip the deposit.  On top of the local ordinances that set stringent procedural requirements for deposits, the landlord is exposed to damages of 2x the deposit and attorney fees if missing one of the many check points.

i agree with @Dooreuhn Cee  .

I don’t see the logic behind this attorney’s interpretation of the RLTO.

  • 1.where does it say in the RLTO that the tenant has the right to withhold rent and have that rent deducted from the security deposit? While it gives the landlord the right, in my reading I don’t see the tenant mentioned anywhere. Someone please point it out for me.
  • 2.If the tenant is not given the right to withhold rent, you are not denying him anything by requiring him to make all payments in conjunction with the lease agreement. If the lease calls for 12 payments, 12 payments are expected. This is the most basic premise of a lease.
  • 3.The standard Chicago apartment lease is written and updated yearly by attorneys who constantly litigate on the eviction floor. Trust me, they know the laws in and out and would never use language that violates the RLTO.

Remember that just because an attorney makes an interpretation, doesn’t mean that a judge will agree. My guess is that this attorney wants to lead tenants to believe that they have potential cases against Chicago landlords (which actually, most do because no one is reading the RLTO carefully) so that they will call him and he can file cases on their behalf whether there is merit there or not. There are many defense attorneys in Chicago who are making very healthy livings based on trolling Chicago landlord ignorance.

I’ve seen some crazy stuff in the eviction courts over the years, and most judges side on behalf of the tenants, but this is a stretch.

again, Don’t bother with security deposits, because if anything goes wrong, that is where the defense attorneys have most of their leverage. Take a maximum of 50% of the rent amount as a move in fee and do frequent inspections. If tenants damage the property beyond wear and tear, document it with paid receipts in conjunction with the RLTO and submit the claim to a collection agency that reports to the bureaus.  this has been my strategy for the last several years and has worked well.  

Do you ever used the security deposit as the last month of rent?


Absolutely do NOT use the security deposit in any way for rent. Period. 

In fact. I do not recommend nor do I collect security deposits anymore due to the 3x deposit penalty for making any kind of simple mistake on the lease or in the management of SDs. I am told it is impossible to protect yourself from these shark attorney's who sue landlords. 

Hope this helps. 

Hi @Dooreuhn Cee  , I see your confusion and I am confused myself. :)

@Roy N.  and @Jim Gramata  are choosing the best path: no more security deposits. 

I personally already have security deposits in my separate account, however I have to make a choice on taking or not taking deposits from now.

This interpretation of the law is opening up Pandora's box.

@Jim Gramata  @Lumi Ispas  So then what type of requirements do you suggest in place of security deposits?  Tenants REALLY behave better with a deposit.  

I was using first and last month rents (speaking of last month rent), but have been advised that holding last month rent at times can be considered a security deposit.  As of my current rental, I switched to a 50% of rent non-refundable move in fee per suggestion of @Eric S.   Am putting together an itemized list of damage expenses to be included with the lease.

@Dooreuhn Cee  so far I have all security deposits. I have to rent few units in few months and I'll have to take a decision about it. If I'll take move in fees, I will take something around $350, as those fees can't be too high either. 

Good luck to you!

IN my case with my tenants I have had over the years I have only had to take money from a security deposit one time and the tenant agreed with the action (his desk and chair scratched the floors in the living room). So for my portfolio I no longer take security deposit money. This is strictly to avoid the risk of being sued over missing some technicality on the lease or in the management of the funds. I am pretty sure I could write a bullet proof lease but again I am going this route. 

If my tenants cause damage and I cannot collect the money I will report it to the credit companies. I would have my attorney write a letter of my terms for collection then worse case file a law suit. Hopefully that doesn't happen but it can.

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