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Can a Chicago Lease Be Terminated When Property Is Sold?

In my experience helping hundreds of tenants in disputes with their landlords a few questions pop up over and over again. Ranking just below security deposit disputes, unlawful entries, and tenants wishing to end their lease early is landlords notifying tenants that they will have to move when a property is sold. This article will address the circumstances under which a tenant’s lease may be terminated due to sale of the property.

Where Is the Property Located and What Law Applies?

Every article about Chicago landlord-tenant law must start with a discussion of the law that applies to the particular apartment. Landlord-tenant law is complex because it is impacted by federal, state, and local law. Local law is particularly important here because the City of Chicago grants most tenants vast rights whereas most other cities (and the state) barely regulate the landlord-tenant relationship at all.

Is the Apartment in Chicago?

Most apartments in Chicago are regulated by the Chicago Residential Landlord and Tenant Ordinance, commonly referred to as the “RLTO.” The RLTO provides many rights and remedies to tenants, but it only applies to apartments within the Chicago city limits. The RLTO does not apply to the suburbs and does not apply to unincorporated Cook County. If the apartment is not within the Chicago city limits, do not assume the laws are similar – they are not. Most suburbs have no tenant protections.

Is the Apartment Exempt from the RLTO?

Though most apartments within the Chicago city limits are subject to the RLTO, there are a few classes of apartments that are exempt. I like to divide the exemptions into two categories: 1) the owner-occupied exemption and 2) seldom- seen exemptions. To see a list of the seldom-seen exemptions, you can click this link.

By far the most common class of properties exempt from the RLTO are units in owner-occupied  buildings that contain six units or fewer. If your apartment is in a building that contains more than six units, your apartment is covered by the RLTO, regardless of whether the building is owner-occupied. If your building has six units or fewer, the RLTO applies so long as the owner of your unit (not other condo owners) does not live in the building.

A common example of an exempt building is a three-flat where the building owner lives on the first floor and tenants live on the second and third floors. The apartments in this building are exempt from the RLTO and would only be subject to state and federal laws (with the exception of lock-outs; the lock-out provision applies to all units in Chicago).

Are There Local Laws in My City?

Few cities in Illinois have tenants’ rights laws. I have listed those that I am aware of below. There may be more, but these are the laws I have come across:

  • Evanston (very comprehensive);
  • Oak Park;
  • Mount Prospect;
  • Urbana; and
  • DeKalb.

What Does the Lease Say?

The first place to look when you have a dispute with your landlord is the text of your lease. This is true whether or not the property is subject to the RLTO. Check to see if the lease has a termination on sale clause (a clause stating that the landlord can terminate the lease if the property is sold). In my experience, termination on sale clauses are included in about 50% of leases, but not typically in those that are designed for the Chicago market since such a clause is not usually enforceable. Those that do allow termination on sale usually provide for 30 to 60 days notice to the tenant.

If the lease does not have a provision allowing the landlord to terminate the lease upon selling the property, the landlord has no right to terminate the lease during its term. The tenant would simply have a new landlord when the property is sold. (Beware of disappearing security deposits in these situations.)

A tenant should be aware of termination on sale provisions when deciding to sign a lease – especially provisions that appear to have been added by the landlord rather than appearing as part of a standard form. This might be an indication that the landlord is thinking of selling the property, or that the property is already on the market. Most at risk are tenants renting a single-family home or a single condominium unit. In those cases, the buyer will likely not be an investor and will want to move in after closing.

Moving is expensive and inconvenient, and a termination on sale clause is a loss of a substantial right. If the tenant does not want to be at risk for having to move on short notice, he or she should request that the termination on sale provision be stricken. If the landlord refuses it is a good indication that he or she intends to sell.

If the lease contains a termination-on-sale provision and the property is not regulated by the RLTO, the landlord will usually have the right to end the lease if the property is sold. However, if the property is in Chicago and the RLTO applies, terminations on sale must meet additional requirements.

Does the Lease Make RLTO Disclosures?

If an apartment is subject to the RLTO, the lease must comply with 5-12-140(g) of the Chicago Municipal Code. This provision states:

Except as otherwise specifically provided by this chapter, no rental agreement may provide that the landlord or tenant:

(g) Agrees that either party may cancel or terminate a rental agreement at a different time or within a shorter time period than the other party, unless such provision is disclosed in a separate written notice.

This RLTO requirement targets two primary practices.

First, some landlords place provisions in leases that say something to the effect of “landlord may terminate at any time.” This, if enforceable, would allow landlords to end leases whenever they felt like it, giving the tenant few protections from losing their home at the landlord’s whim.

Second, this provision bans hidden termination on sale clauses. Unless the lease provides that either party may terminate if the property is sold, the provision must be in a separate written notice (presumably drawing the tenant’s attention to it).

If a termination on sale provision is hidden in the small print and is not on a separate written notice, it is unenforceable. Moreover, a violation of 5-12-140 gives the tenant a claim for two months’ rent or actual harm suffered (whichever is more) as well as a claim for  attorney fees and case costs.

If a landlord is attempting to terminate your Chicago lease in violation of the law, contact an attorney to learn your rights.

Was a Foreclosure Involved?

All tenants within the city limits of Chicago are protected by the Keep Chicago Renting Ordinance (officially called the Protecting Tenants in Foreclosed Rental Properties Ordinance). This ordinance was enacted in the wake of the 2008 foreclosure crisis that resulted in many landlords facing foreclosure. Landlords reacted to the foreclosures in many different ways, including disappearing, failing to pay utilities, and conveying the property to the bank or professional foreclosure buyers.

Many tenants ended up having a bank as their landlord. Many banks completely neglected their properties, tried to evict the tenants, or refused to renew leases when when they were up. The City did not want tenants to face an expensive move because of a landlord’s fiscal irresponsibility, nor did the City want neighborhoods to become blighted with vacant buildings. Thus, the Keep Chicago Renting Ordinance (“KCRO”) was enacted.

The KCRO formally states its purpose as an attempt to mitigate the damaging effects of foreclosures including the loss of home for tenants and the damaging economic impact of vacant buildings. The KCRO was designed to give new owners of foreclosed properties incentive to keep the existing tenants.

The KCRO is complicated and requires strict compliance by buyers of a foreclosed property. If the KCRO applies to the sale of a tenant’s apartment, the tenant’s lease must either be renewed or the tenant must be paid a $10,200.00 relocation fee.

If the apartment is not within the Chicago city limits, all Illinois tenants are protected by the Illinois protecting tenants in foreclosure law, which will be discussed later in this article..

When Does the Keep Chicago Renting Ordinance Apply?

First, the KCRO only applies to properties within the Chicago city limits. It does not apply to suburban Cook County or unincorporated Cook County. I am not aware of any other city that has a similar ordinance.

Second, the apartment must be a Foreclosed Rental Property, which is a term defined by the KCRO. A Foreclosed Rental Property means a rented dwelling unit, including a condominium or single family house, that is occupied at the time the property is sold and where the original owner’s legal and equitable interests in the property were terminated by a foreclosure action. “Termination by a foreclosure action” typically means either a full foreclosure and sheriff’s sale of the property or a bank accepting a deed in lieu of foreclosure.

Third, the tenant must occupy the Foreclosed Rental Property as his or her principal residence. The KCRO does not protect vacation homes or commercial properties.

Fourth, the KCRO does not apply if the tenant seeking to invoke its protection has an insider deal or close relationship to the landlord. Specifically, the apartment owner as well as the owner’s child, spouse, and parents are excluded from the KCRO if they reside in the property. Additionally, the tenant that wishes to claim KCRO protection must have become a tenant in an arms-length transaction and must be paying near fair market rent for the unit.

Fifth, KCRO protections do not apply if the buyer of the Foreclosed Rental Property is going to occupy the tenant’s unit as his or her own principal residence.

Sixth, the KCRO does not apply to a successor owner that purchased the property from the bank/original foreclosure purchaser unless the successor is an insider with respect to the bank/original foreclosure purchaser.

These are the primary requirements for KCRO applicability. However, there are a few additional exclusions that are less common. To review the full text of the KCRO, reference Chapter 5-14 of the Chicago Municipal Code.

What Steps Must the Purchaser Take?

The Keep Chicago Renting Ordinance places several requirements on a bank or other purchaser of a foreclosed rental property.

Notice to Tenants

Within 21 days of becoming the owner of a foreclosed rental property, the purchaser or bank must make a good faith effort to learn the identities and addresses of the property’s tenants and notify all known tenants of their rights under the KCRO. The notice must be in writing, contain the lengthy statutory text, and be written in English, Spanish, Polish and Chinese. Most tenants remember whether or not they received this notice because of the multiple  languages used.

Content of the Notice

The Notice to Tenants must state the following:

This Is Not A Notice To Vacate The Premises. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any right that you may have.
 
   Pursuant to the City of Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance, if you are a qualified tenant you may be eligible for relocation assistance in the amount of $10,600 unless the owner offers you the option to renew or extend your current written or oral rental agreement with an annual rent that: (1) for the first 12 months, does not exceed 102 percent of your current annual rent; and (2) for any 12-month period thereafter, does not exceed 102 percent of the immediate prior 12-month period’s annual rent. The option to renew or extend your lease shall continue until the property is sold to a bona fide third-party purchaser.
 
   If you are eligible as a qualified tenant and the owner fails to pay you the relocation assistance that is due, you may bring a private cause of action in a court of competent jurisdiction seeking compliance with the Protecting Tenants in Foreclosure Rental Property Ordinance, Chapter 5-14 of the Municipal Code of Chicago, and the prevailing plaintiff shall be entitled to recover, in addition to any other remedy available, his damages and reasonable attorney’s fees.
 
   You may go to the City of Chicago Department of Business Affairs and Consumer Protection’s website for additional information regarding your rights and obligations under the Ordinance or phone the City of Chicago’s 311 Service Center to file a complaint.
The notice must state the name, address and telephone number of the owner, property manager, or owner’s agent that is responsible for the property, and it must also include the date it was sent.
The Notice to Tenants must also have a Tenant Information Disclosure Form attached to it. This is a formal form that is produced by the Commissioner of Business Affairs and Consumer Protection.
Manner of Serving the Notice

The KCRO prescribes that the Notice to Tenants must be written, contain the statutory text in four specified languages, and be attached to a Tenant Information Form. The KCRO requires that all owners of Foreclosed Rental Properties to post a Notice to Tenants on the primary entry of the Foreclosed Rental Property within 21 days of taking ownership. Additionally, the owner of the Foreclosed Rental Property service notice to each known tenant in one of the three following ways:

  1. Delivering the Notice to the known tenant;
  2. Leaving a copy of the Notice with a person 13 years of age or older who resides in the tenant’s rental unit; or
  3. Sending a copy of the Notice by first class or certified mail, return receipt requested, to each known tenant.

If the owner of a Foreclosed Rental Property becomes aware of an additional tenant more than 21 days after becoming the property owner, he or she must comply with the notice requirements within seven days of ascertaining the tenant’s identity.

Consequences of Failure to Serve the Notice
 If the owner of a foreclosed rental property does not properly serve the Notice to Tenants, the owner may not collect rent due from any known tenant until the required Notice is served.

Completion of the Tenant Information Form

The tenant is to complete the Tenant Information Form and return it to the new owner or the owner’s agent no later than 21 days after receving the Notice to Tenants. However, failure to complete and return the Form does not impact a tenant’s rights or a landlord’s obligations under the KCRO.

Offer of Renewal or Relocation Assistance

Within 21 days of receiving the Tenant Information Form or 42 days from the date the Notice To Tenants was served, whichever is earlier, the owner of the foreclosed rental property must either send  a written notice to the tenant notifying him or her that the landlord will be paying the $10,600.00 relocation assistance fee or offering to extend the tenant’s rental agreement at a rate that does not exceed 102% of the tenant’s current annual rental rate.

It is the purchaser/landlord’s choice whether to pay the relocation assistance fee or offer to renew the tenant’s lease. The tenant cannot demand one or the other. If the landlord offers to extend the lease and the tenant declines, the tenant will have to move out without receiving any rental assistance.

If the landlord offers the relocation assistance, he or she must pay the tenant with a certified cashier’s check no later than 7 days after the tenant vacates the unit. The relocation fee is in addition to the refund of any security deposit the tenant paid to the owner or predecessor owner. The owner offering relocation assistance may deduct any rent that is due from the relocation assistance payment, but may not deduct any other amount, including alleged property damage.

If the owner of a foreclosed rental unit chooses to renew the lease, he or she must continue to make this offer with no more than a yearly 2% increase in rent until the landlord sells the unit to an unrelated third party in a good faith transaction (not an insider or related party transaction).

Consequences for Failure to Extend or Pay Assistance

If the purchaser/new landlord does not offer to extend the tenant’s lease at no more than 102% of the rent received under the previous lease or notify the tenant that the landlord will pay relocation assistance within the time frame set forth in the KCRO, the landlord is in violation of the law. Moreover, if the landlord does not pay the relocation assistance on time, he or she is also in violation of the KCRO.

These violations give the tenant a right to claim a penalty of two times the relocation assistance plus any attorney fees and case costs the tenant incurs while enforcing his or her rights. If you believe your landlord is in violation of the KCRO or might not comply with the KCRO, click here to contact an attorney.

In addition to the tenant’s right to enforce his or her rights, the City of Chicago can initiate a proceeding against any landlords who violate the KCRO. If the City chooses to enforce, the penalty for violation is $500.00 to $1,000.00 for each day the owner is not in compliance.

Rights Under the Illinois Protecting Tenants in Foreclosure Law

All tenants in Illinois, regardless of whetehr they live within the Chicago city limits, are protected under 735 ILCS 5/9-207.5, commonly referred to as the Illinois Protecting Tenants in Foreclosure Law. This law is very similar to the Federal Protecting Tenants At Foreclosure Act, but it does not have an automatic termination date (called a sunset provision) that is in the federal law.

The Illinois law protects tenants that rentunder what it calls a “bona fide lease.” In general terms, this means the tenant isn’t related to the owner and is required to pay fair market rent. To read the formal definition, see 735 ILCS 5/15-1224.

If the property is in foreclosure, the lease can be terminated when a third party, such as the bank holding the mortgage, a receiver, or a foreclosure buyer assumes control of the property. However, if the tenant holds a bona fide lease the tenant has special protections with respect to lease termination. The protections depend on whether the tenant is under a written lease for a specific term or a month-to-month lease (expired written leases are month-to-month). The protections are as follows:

A month-to-month tenant is entitled to 90 days’ written notice of lease termination. This is more than the standard 30 days’ notice required under general Illinois landlord-tenant law.

A tenant under a written lease is entitled to stay for the entire lease term and the landlord must give 90 days’ notice of his or her intent not to renew. Put another way, the tenant under a written lease has a right to 90 days’ notice, but the lease cannot be terminated before the end of term date on the written lease. However, if the person trying to take possession is a purchaser that will occupy the apartment as his or her personal primary residence, the written lease may be terminated on 90 days’ notice.

What Happens If the Tenant Doesn’t Leave?

It is very common for buyers and banks to think they can simply demand that the tenant leave and/or change locks. A landlord can ask a tenant to leave, but that does not legally require the tenant to leave (though there may be consequences if the tenant doesn’t have a lease). A landlord absolutely cannot change the locks on a tenant in Illinois or come up with other creative means to make the tenant’s life uncomfortable (such as removing doors, terminating utilities, and so on. You should contact a lawyer if this happens).

For a landlord to properly remove a tenant against the tenant’s will the landlord must take the steps outlined by Illinois Forcible Entry and Detainer Law (eviction law). If the property is in Chicago and subject to the RLTO, the landlord must also comply with the RLTO.

This isn’t meant to be a comprehensive guide on eviction law, but in general the landlord must take the following actions to evict a tenant:

1. Serve the Proper Notice

The appropriate notice of termination depends on the situation and relationship that exists between the landlord and the tenant.

If a written lease is expiring, the landlord must normally give a notice of non-renewal as provided in the lease. Under the RLTO, this notice must be in writing and delivered at least 30 days prior to the termination date.

If the termination is for unpaid rent, the landlord must serve a 5-day notice to cure.

If the termination is for violation of a term of the lease, the landlord must serve a 10-day notice to cure.

If the termination ends a month-to-month tenancy, the landlord must provide a 30 day notice of lease termination.

If the termination falls under the protections of the Illinois Protecting Tenants in Foreclosure Law, a 90-day notice of lease termination/non-renewal must be served.

2. File an Eviction Lawsuit in Court

Depending on the reason for termination, if the tenants do not vacate or do not cure their non-compliance by the date set forth on a properly served notice, the landlord will have the right to file an eviction lawsuit in court. Evictions are extremely common in the Cook County court system, and the Clerk’s office does keep basic forms that help landlords try to handle the eviction without attorney assistance. That said, eviction process is actually quite technical, and a landlord’s failure to do everything perfectly usually results in re-starting the eviction process.

3. Serve Tenants with Summons

At the time of filing the eviction, the landlord will also arrange for the sheriff to serve the summons on the tenants. Generally, the sheriff will serve the summons personally, just like on TV where the summons is handed to the defendant/tenant.

Many times, the sheriff will fail at serving the summons. In such cases, the landlord can either try to use the sheriff again (and pay another fee to do so) or hire a private investigator if the court grants permission.

Generally, to be effective, the summons must be personally handed to the tenant or a person that resides at the tenant’s residence who is at least 13 years old. If the landlord tries to have the summons served numerous times and it is clear that the tenant is intentionally trying to avoid summons, the court may authorize alternative means of service. Moreover, if it appears the tenant has abandoned the apartment, the court may allow the landlord to post the summons on the unit, but this technique should only be used in a lawsuit for possession, not for back rent.

4. Court Appearance

When the tenant is served with a summons, it will include a date, time, and location for the first court appearance. What happens at the first appearance varies by county and situation. In some cases a trial will happen that day. In other cases, the court will set a trial date in the near future. This is especially true if the tenant requests a jury or needs time to find a lawyer.

In many cases, the judge will try to resolve the case with an agreed order of possession, giving the tenant a couple of weeks to move out before the sheriff arrives. Tenants don’t have to agree to anything, but many times they do – especially if the landlord agrees to waive rent owed in exchange for the tenant not fighting the case.

If the matter is not decided on the first court date, there will be a trial few weeks later, which is run much like a Judge Judy trial. If the landlord is successful, the judge will enter an order of possession at the end of the trial. Many times the order of possession will be “stayed” (put on hold) for two weeks to allow the tenant to move out.

5. Sheriff Eviction

If the tenant does not voluntarily vacate by the date stated in the order of possession, the landlord can place the order with the sheriff’s office. The order will be placed on the sheriff’s list and when it is at the front of the queue, the sheriff will come out to the apartment and order the tenants to leave. If the tenants still refuse, the sheriff will physically remove them and allow the landlord to change the locks.

What happens to the tenant’s possessions in these situations varies by county. In Cook, the sheriff does not remove the tenant’s possessions and the landlord has to follow the law with respect to access and/or disposal. In some counties the tenant’s possessions will be placed outside the unit.

Summary

In most cases, a Chicago landlord cannot force a tenant to move out when the apartment is sold if the tenant has a written lease. In order to terminate a lease upon sale of the apartment, the lease must have a termination on sale clause and the landlord must provide whatever notice the lease requires (30, 60, or even 90 days is often required).

If the apartment is subject to the Chicago RLTO, a termination on sale clause hidden in the fine print is not sufficient. The RLTO requires a separate notice whenever a lease allows one party to terminate the lease in a shorter period of time than the other.

If the lease is being terminated due to some sort of foreclosure proceeding or foreclosure-like proceeding, the rules are much more complicated. Because the mortgagee (typically the lending bank) has superior rights to the tenant, the mortgagee is typically able to terminate the lease as part of the foreclosure process. However, both the Chicago City Council and the Illinois Legislature have enacted protections for tenants in foreclosed properties. Illinois provides for the tenant to stay the remainder of his or her written lease and to receive 90 days’ notice under most circumstances. If the apartment is subject to the KCRO, the new owner of a foreclosed property has many duties, including the duty to pay $10,200.00 in relocation assistance if he or she does not renew the lease.

Even if the landlord has a right to terminate the lease, the landlord has to follow the rules by giving proper notice to the tenant and then going through the in-court eviction process if the tenant doesn’t leave. Under no circumstances may the landlord attempt an illegal self-help eviction.

If a landlord (or bank) attempts to terminate your lease because of a foreclosure you should talk to an attorney as soon as possible to protect your rights. Not only are there several legal protections in place, but landlords are often willing to compensate tenants for the inconvenience of moving when the tenant is represented by an attorney.

 

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