Chicago security deposit law is a complex web of state statutes, county ordinances, municipal codes, and common law (judge-made law). On top of that, each law or code has certain exclusions for different types of properties. All of this makes it very difficult for Chicago tenants to determine the parameters of Chicago security deposit law. Furthermore, artificial intelligence and chatbots almost always get it wrong, and even inexperienced lawyers often rely on the wrong regulations.
In this article, I will explain Chicago security deposit law in an easy-to-understand way that provides clarity and helps Chicago tenants understand their rights and remedies. Though I encourage you to read the full article, you can jump to the end, where I summarize the law as it applies to most Chicago residents, if you don’t have time to read something so comprehensive.
Note: If your unit is not located within the Chicago city limits, this is not the article for you. Suburban Cook County residents should click here to read my article about Cook County security deposit law. Residents of Illinois counties other than Cook should click here to read my article about security deposit law throughout the state.
Introduction
For as long as security deposits have existed, many landlords have treated them as their personal piggy bank. Deposit theft is so common because our legal system greatly favors the person who possesses the money, especially when that person is also the more powerful of the two parties in a dispute. The person holding the money doesn’t have to do anything to keep it. In contrast, the person seeking to recover the money must bring an action in court, get a judgment, and then collect that judgment through a separate legal action. As you can imagine, that is very time-consuming and can be considerably expensive. Furthermore, and contrary to popular belief, the police will not get involved in security deposit theft situations. They will tell the tenant that deposit theft is a civil matter and to get a lawyer.
Landlords learned long ago that they can leverage the legal system’s inefficiency and expense by forcing tenants to deposit money when they sign the lease, shifting the burden of bringing a lawsuit to the tenant.
In response to landlords rampantly abusing security deposits, state and local governments developed laws that attempt to stop this abuse. This includes several laws relevant to Chicago security deposits. First, a limited version of the statewide Illinois Security Deposit Return Act (SDRA) was enacted in the 1970s. After that, the more protective Chicago Residential Landlord and Tenant Ordinance (RLTO) was passed in the mid-1980s. Cook County got on board in 2021 with the Cook County Residential Tenant and Landlord Ordinance (CCRTLO), and the Illinois Security Deposit Return Act received a major update in 2024, greatly broadening its scope.
Since there are several statutes and ordinances relevant to Chicago security deposit law, the first step in recovering a deposit is figuring out which law applies to a particular unit. The next section explains this complex process.
Which Law Applies to My Unit?
The first step in analyzing a security deposit dispute is determining which law applies to the rental unit. The various laws each exclude certain units from coverage. To determine which law applies, the tenant should look to the exclusions of each individual law (discussed in their separate section) and apply the law in the following priority:
- Determine whether the RLTO applies to your unit. If not, go to step 2.
- Determine whether the CCRTLO applies. If not, go to step 3.
- Determine whether the new SDRA applies. If not, go to step 4.
- Determine whether the old SDRA applies. If not, go to step 5.
- Breach of contract law applies to any unit not covered by the RLTO, CCRTLO, or SDRA.
Applicability of Chicago Security Deposit Law: The RLTO
Of all the laws that may protect a Chicago security deposit, the RLTO is the most protective and covers most rental units located within the city. However, there are a few unit types that it does not protect. I have divided these exclusions into common and uncommon. All units except for the following are covered by the RLTO:
Common exclusions
- Units outside the Chicago city limits.
- Commercial or industrial units.
- Units in owner-occupied buildings containing fewer than 7 units. This means that if your building has fewer than 7 units and the owner of your unit (not other condominium owners) lives in your building, the unit is excluded.
Uncommon exclusions
- Hotels, motels, and rooming houses, unless rent is paid monthly and the tenant has occupied the unit for at least 32 days.
- Employee housing, school-owned dorms, and shelters.
- Convents and hospitals.
- Co-ops where the tenant is also a shareholder (Basically, the owner of a co-op unit is also considered a tenant. It’s confusing, but co-ops are rare in Chicago).
If your unit is covered by the RLTO, great! Jump down to the section discussing the RLTO.
Applicability of the Cook County Security Deposit Law: The CCRTLO
This article is focused on Chicago security deposit law and the CCRTLO does not apply to units located within the Chicago city limits since Chicago has its own comprehensive law regulating the relationship between landlords and tenants. However, if your unit is located in suburban Cook County, click here to learn about Cook County security deposit law, its exclusions, and remedies.
Applicability of the New Illinois Security Deposit Return Act
In 2024, Illinois amended the SDRA to cover all residential units in Illinois. (Previously, it only covered tenants living in buildings containing 5 or more units owned by the tenant’s landlord.) Whether the new SDRA applies depends on when the tenant vacated the unit:
- If a tenant vacated the unit on or after January 1, 2024, the new SDRA applies.
- If a tenant moved out of a unit before January 1, 2024, the new SDRA does not apply.
Applicability of the Old Illinois Security Deposit Return Act
Though the old SDRA has no geographic limitations within the state of Illinois—in other words, it applies to rental units statewide—it is completely useless to many tenants because it only applies to tenants living in buildings with 5 or more units. Moreover, the appellate court has determined that the building needs to have at least 5 units owned by the owner of the tenant’s unit, not just a total of five or more units. Thus, all small buildings are excluded, and nearly all large condominium buildings are excluded as well. The old SDRA only applies to units where the owner of the tenant’s unit also owned at least 4 additional units in the building.
Applicability of Breach of Contract Law
If a unit is not covered by the RLTO, CCRTLO, new SDRA, or old SDRA, then the security deposit is regulated by breach of contract law. In this case, the language of the lease itself establishes the tenant’s rights to have the deposit returned. Generally, the only Chicago deposit disputes subject to breach of contract law are those where the tenant vacated before January 1, 2024, and is excluded from the RLTO and the old SDRA.
Chicago Security Deposit Law – The RLTO
The Chicago RLTO, which is contained in section 5-12-080 of the Chicago Municipal Code, regulates security deposits for all non-excluded Chicago units. Landlords must comply with the letter of the law to avoid the consequences of the law. There are no defenses to a failure to comply with Chicago security deposit law, this means that there are no excuses for violating it.
Chicago landlords can run afoul of Chicago security deposit law at the beginning of the tenancy, during tenancy, and after move-out. I will explain the law as it applies at each of these stages so the regulations are more readily digestible.
Chicago Security Deposit Law – Early Tenancy
The RLTO contains three provisions that regulate deposits at the time of move-in. Landlords must:
- Provide tenants with a proper security deposit receipt;
- Disclose the name and address of the bank holding the deposit; and
- Hold the deposit in a properly an Illinois bank account that does not also contain the landlord’s funds.
The Security Deposit Receipt
When landlords receive security deposits, they must provide tenants with a signed receipt listing the landlord’s name, the date the deposit was received, the unit address, the name of the person receiving the deposit, and the deposit amount. If the deposit is paid electronically, the landlord can substitute an electronic signature for a manual signature.
The RLTO states:
(b) (1) Except as provided for in subsection (b)(2), any landlord who receives a security deposit from a tenant or prospective tenant shall give said tenant or prospective tenant at the time of receiving such security deposit a receipt indicating the amount of such security deposit, the name of the person receiving it and, in the case of the agent, the name of the landlord for whom such security deposit is received, the date on which it is received, and a description of the dwelling unit. The receipt shall be signed by the person receiving the security deposit. Failure to comply with this subsection shall entitle the tenant to immediate return of security deposit.
(2) Upon payment of the security deposit by means of an electronic funds transfer, the landlord shall give the tenant a receipt that complies with subsection (b)(1), or an electronic receipt that acknowledges the receipt of the security deposit. The electronic receipt shall set forth the date of the receipt of the security deposit, the amount of the deposit, a description of the dwelling unit and an electronic or digital signature, as those terms are defined in 5 ILCS 175/5-105, of the person receiving the deposit.
5-12-080(b)
Landlords commonly fail to provide a compliant security deposit receipt, or any security deposit receipt at all. In my experience handling hundreds of cases, I have almost never seen a compliant receipt in situations where a landlord self-manages a unit.
Bank Disclosure
The tenant’s lease must clearly and conspicuously disclose both the name and address of the bank where the security deposit will be held. If there is no written lease, the landlord must provide this information in a written disclosure within 14 days of receiving the deposit.
According to the RLTO:
(a)(3) The name and address of the financial institution where the security deposit will be deposited shall be clearly and conspicuously disclosed in the written rental agreement signed by the tenant. If no written rental agreement is provided, the landlord shall, within 14 days of receipt of the security deposit, notify the tenant in writing of the name and address of the financial institution where the security deposit was deposited.
5-12-080(a)(3)
Though many Chicago leases provide a blank space for a landlord to fill in with the name and address of the bank holding the deposit, many landlords neglect to include this information or only provide the name of the bank.
Properly Segregated Account
Chicago security deposit law requires that landlords place security deposits in a segregated, federally insured, interest-bearing account in a financial institution located in Illinois. Further, the account must be protected from the landlord’s creditors
The ordinance states:
(a)(1) A landlord shall hold all security deposits received by him in a federally insured interest-bearing account in a bank, savings and loan association or other financial institution located in the State of Illinois. A security deposit and interest due thereon shall continue to be the property of the tenant making such deposit, shall not be commingled with the assets of the landlord, and shall not be subject to the claims of any creditor of the landlord or of the landlord’s successors in interest, including a foreclosing mortgagee or trustee in bankruptcy.
5-12-080(a)(1)
Landlords seldom keep deposits in an account that is separate from their own assets. Moreover, few checking accounts pay interest these days, so when landlords hold deposits in a checking account, that account is almost always in violation of the RLTO.
Chicago Security Deposit Law – During Tenancy
In addition to the RLTO’s requirements for how landlords must handle security deposits during early tenancy, Chicago security deposit law has several requirements that come into play during tenancy. These requirements are:
- Notification of deposit transfer;
- Notification of property transfer; and
- Payment of yearly interest.
Notification of Deposit Transfer
If a landlord moves the security deposit from the original bank to a different bank, the landlord must provide the tenant with a written notification of the transfer within 14 days. The notice must contain the name and address of the new institution holding the security deposit.
According to the RLTO:
(a)(3) If, during the pendency of the rental agreement, a security deposit is transferred from one financial institution to another, the landlord shall, within 14 days of such transfer, notify the tenant in writing of the name and address of the new financial institution.
5-12-080(a)(3)
Notification of Property Transfer
If a Chicago landlord sells or otherwise transfers ownership of a rental unit during the term of a tenancy, the new landlord must disclose the transfer to the tenant in writing. The disclosure must state:
- That the security deposit has been transferred to the new owner; and
- The new owner’s name, business address, and business telephone number.
The disclosure must be delivered or mailed to the tenant’s last known address within 14 days of the transfer.
According to the ordinance:
(e) In the event of a sale, lease, transfer of ownership or control or other direct or indirect disposition of residential real property by a landlord who has received a security deposit or prepaid rent from a tenant, the successor landlord of such property shall be liable to that tenant for any security deposit, including statutory interest, or prepaid rent which the tenant has paid to the transferor.
The successor landlord shall, within 14 days from the date of such transfer, notify the tenant who made such security deposit by delivering or mailing to the tenant’s last known address that such security deposit was transferred to the successor landlord and that the successor landlord is holding said security deposit. Such notice shall also contain the successor landlord’s name, business address, and business telephone number of the successor landlord’s agent, if any. The notice shall be in writing.
The transferor shall remain jointly and severally liable with the successor landlord to the tenant for such security deposit or prepaid rent, unless and until such transferor transfers said security deposit or prepaid rent to the successor landlord and provides notice, in writing, to the tenant of such transfer of said security deposit or prepaid rent, specifying the name, business address and business telephone number of the successor landlord or his agent within ten days of said transfer.
5-12-080(e)
Yearly Interest
Landlords holding a Chicago security deposit for at least 6 months must pay the tenant interest in the 30 days following each 12-month rental period. The interest must be paid in either cash or credit applied to rent due.
The RLTO says:
(c) A landlord who holds a security deposit or prepaid rent pursuant to this section for more than six months shall pay interest to the tenant accruing from the beginning date of the rental term specified in the rental agreement at the rate determined in accordance with Section 5-12-081 for the year in which the rental agreement was entered into. The landlord shall, within 30 days after the end of each 12-month rental period, pay to the tenant any interest, by cash or credit to be applied to the rent due.
5-12-080(c)
Violation of the yearly interest provision is extremely common.
Chicago Security Deposit Law – After Move-Out
Most tenants who call my office do so because their landlord made unfair deductions to their security deposit and they want to know how to get the money back. Chicago security deposit law regulates the following:
- Permissible deductions;
- Timely disclosure of deductions;
- Proof of repair cost;
- Deadline to return the deposit; and
- When final interest must be paid.
Permissible deductions
Landlords are only allowed to deduct two things from a security deposit: unpaid rent and property damage beyond ordinary wear and tear.
The RLTO says:
(d)… the landlord, or successor 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; and
(2) A reasonable amount necessary to repair any damage caused to the premises by the tenant or any person under the tenant’s control or on the premises with the tenant’s consent, reasonable wear and tear excluded…
5-12-080(d)
Timely Disclosure of Deductions
If a landlord deducts money from a deposit for property damage, the landlord must send the tenant an itemized list within 30 days of the tenant vacating the property. The list must include the actual or estimated cost of repairing or replacing each item on the list.
The RLTO states:
(d)(2) In case of such damage, the landlord shall deliver or mail to the last known address of the tenant within 30 days an itemized statement of the damages allegedly caused to the premises and the estimated or actual cost for repairing or replacing each item on that statement…
5-12-080(d)
Proof of Repair Costs
In addition to the itemized list of deductions, landlords must prove that the repairs were made and demonstrate the actual cost of those repairs. This is typically accomplished by delivering paid receipts within 30 days of the itemized list.
The RLTO explains it as follows:
(d)(2) attaching copies of the paid receipts for the repair or replacement. If estimated cost is given, the landlord shall furnish the tenant with copies of paid receipts or a certification of actual costs of repairs of damage if the work was performed by the landlord’s employees within 30 days from the date the statement showing estimated cost was furnished to the tenant.
5-12-080(d)
Timely Return of Deposit or Partial Deposit
Under Chicago security deposit law, a landlord has 45 days to return the security deposit or partial deposit:
(d) The landlord shall, within 45 days after the date that the tenant vacates the dwelling unit or within seven days after the date that the tenant provides notice of termination of the rental agreement pursuant to Section 5-12-110(g), return to the tenant the security deposit or any balance thereof
5-12-080(d)
Payment of Final Interest
Payment of final security deposit interest is typically due within 45 days of the tenant vacating the unit. The deadline for paying interest is straightforward in situations where the tenant lived in the unit for an exact year or number of years. However, confusing deadlines can arise in situations where the tenant’s lease is extended by a few days or weeks. That is because interest for the full year comes due 30 days after the year ends, but interest for the extra days or weeks comes due 45 days after the tenant vacates. Landlords often wait the full 45 days to pay any interest at all, which is improper.
According to the RLTO:
(d) The landlord shall, within 45 days after the date that the tenant vacates the dwelling unit or within seven days after the date that the tenant provides notice of termination of the rental agreement pursuant to Section 5-12-110(g), return to the tenant the security deposit or any balance thereof and the required interest thereon;…
(c) A landlord who holds a security deposit or prepaid rent pursuant to this section for more than six months shall pay interest to the tenant accruing from the beginning date of the rental term specified in the rental agreement at the rate determined in accordance with Section 5-12-081 for the year in which the rental agreement was entered into. The landlord shall, within 30 days after the end of each 12-month rental period, pay to the tenant any interest, by cash or credit to be applied to the rent due.
5-12-080(d), 5-12-080(c)
Tenants’ Remedies When Landlords Violate Chicago Security Deposit Law
Historically, tenants were forced to handle security deposit issues under a breach of contract claim. They were forced to bring a lawsuit, win their case, and collect a judgment—an expensive and time-consuming endeavor—just to recover the amount their landlord should have returned in the first place. This scheme was completely unworkable for tenants because the cost of bringing suit nearly always exceeded the deposit amount, leading to landlords stealing security deposits with impunity.
To dissuade landlords from stealing deposits, the Chicago City Council enacted the RLTO, which increased the tenant’s claim to a penalty of two times the deposit, plus return of the deposit. Additionally, Chicago security deposit law mandates that the landlord pay the tenant’s reasonable attorney’s fees if the tenant successfully proves that the landlord violated deposit law. Thus, when a landlord steals a deposit, the worst-case scenario for the landlord is not simply giving the deposit back, it is a judgment where landlords commonly pay more than $10,000.
The law states:
(f)(1) Subject to subsection (f)(2), if the landlord fails to comply with any provision of Section 5-12-080(a) – (e), the tenant shall be awarded damages in an amount equal to two times the security deposit plus interest at a rate determined in accordance with Section 5-12-081. This subsection does not preclude the tenant from recovering other damages to which he may be entitled under this chapter.
Except in cases of forcible entry and detainer actions, the prevailing plaintiff in any action arising out of a landlord’s or tenant’s application of the rights or remedies made available in this ordinance shall be entitled to all court costs and reasonable attorney’s fees; provided, however, that nothing herein shall be deemed or interpreted as precluding the awarding of attorney’s fees in forcible entry and detainer actions in accordance with applicable law or as expressly provided in this ordinance.
5-12-080(f)(1), 5-12-180
Cook County Security Deposit Law – The CCRTLO
In 2021, Cook County enacted its first comprehensive tenants’ rights law, the Cook County Residential Tenant and Landlord Ordinance. The CCRTLO closely mirrors the RLTO, but there are some important differences. Though the CCRTLO is a county ordinance, it does not cover units in cities that have their own comprehensive landlord-tenant law.
The CCRTLO states:
This Ordinance is subject to the home rule as established by the Constitution of the State of Illinois Article VII, Section 6, Powers of Home Rule Units. This Article regulates all residential buildings and structures that exist or are erected, constructed, altered, demolished, or relocated within the boundaries of Cook County, excluding those cities, villages, and incorporated towns that maintain promulgated regulations that establish both the rights and obligations of both the tenant and the landlord in the rental of dwelling units. The regulations must contain specific language defining and regulating the relationship between the tenant and landlord, policies protecting and promoting the public health, safety, and welfare of tenants, and remedies under a rental agreement in order to be excluded from this Article.
42-101(d)
Chicago has its own comprehensive landlord-tenant law (the RLTO), so the CCRTLO does not apply to units located within city limits. Since this article is focused on Chicago security deposit law, I will not discuss the CCRTLO here. However, I have several articles that discuss the CCRTLO, so if you are a suburban tenant, you can read either my article on Illinois Security Deposit Law or my article on Cook County Security Deposit Law.
The New Illinois Security Deposit Return Act
The Illinois Security Deposit Return Act was amended, effective January 1, 2024, to include all residential units in the state. This significant change extends security deposit protection to all Illinois tenants for the first time ever. If a tenant is not protected by the RLTO or CCRTLO, which provide stronger security deposit regulations, the SDRA provides some protection.
Unlike the RLTO, the SDRA only regulates situations where a landlord keeps a portion of the security deposit for property damage.
Under the SDRA, if the landlord keeps the security deposit due to property damage, the landlord must deliver to the tenant an itemized statement of the alleged damage. This statement must also include the estimated or actual repair or replacement cost for each item. The statement must be provided within 30 days of the date when the tenant vacated the unit or within 30 days of when the tenant’s right to possession ended, whichever is later.
The landlord must also include paid receipts that show the cost of either repairing or replacing each item on the list. These receipts must be provided with the itemized list if actual costs are given or within 30 days of submitting the itemized list if costs are estimated.
The amended SDRA states:
…a lessor of residential real property who has received a security deposit from a lessee to secure the payment of rent or to compensate for damage to the leased premises may not withhold any part of that deposit as reimbursement for property damage unless the lessor has, within 30 days of the date that the lessee vacated the leased premises or within 30 days of the date the lessee’s right of possession ends, whichever is later, furnished to the lessee, by personal delivery, by postmarked mail directed to his or her last known address, or by electronic mail to a verified electronic mail address provided by the lessee, an itemized statement of the damage allegedly caused to the leased premises and the estimated or actual cost for repairing or replacing each item on that statement, attaching the paid receipts, or copies thereof, for the repair or replacement. If the lessor utilizes his or her own labor to repair or replace any damage or damaged items caused by the lessee, the lessor may include the reasonable cost of his or her labor to repair or replace such damage or damaged items. If estimated cost is given, the lessor shall furnish to the lessee, delivered in person or by postmarked mail directed to the last known address of the lessee or another address provided by the lessee, paid receipts, or copies thereof, within 30 days from the date the statement showing estimated cost was furnished to the lessee, as required by this Section…
765 ILCS 710/1 (a)
However, the SDRA allows a landlord to substitute a verified statement for paid receipts if the landlord is unable to produce paid receipts. This is allowed only when the inability to produce receipts is not the landlord’s fault. The law says:
(b) If, through no fault of the lessor, the lessor is unable to produce as required in subsection (a) receipts for repairs or replacements, or copies thereof, then the lessor shall produce an itemized list of the cost of repair or replacement, any other evidence the lessor has of the cost, and a verified statement of the lessor or the agent of the lessor detailing the specific reasons why the lessor is unable to produce the required receipts or copies and verifying that the lessor has provided all other evidence the lessor has of the cost.
765 ILCS 710/1 (b)
Unlike the RLTO (and the CCRTLO), the SDRA allows landlords to rely on lease provisions that list the cost to repair and replace specific building components. The listed charges contained in the lease are enforceable so long as they are reasonable and do not exceed the cost of restoring the unit to the condition it was in at the time the lease began, less ordinary wear and tear. If the landlord relies on a list of charges contained in the lease, the landlord must attach that portion of the lease to the itemized list of deductions.
The SDRA states:
If a written lease specifies the cost for cleaning, repair, or replacement of any component of the leased premises or any component of the building or common areas that, if damaged, will not be replaced, the lessor may withhold the dollar amount specified in the lease. Costs specified in a written lease shall be for damage beyond normal wear and tear and reasonable to restore the leased premises to the same condition as at the time the lease began. The itemized statement shall reference the dollar amount specified in the written lease associated with the specific building component or amenity and include a copy of the applicable portion of the lease. Deductions for costs or values not specified in the lease shall otherwise comply with the requirements of this Section.
765 ILCS 710/1 (a)
If the landlord fails to provide both a list and receipts, the landlord must return the full deposit within 45 days of the date when the tenant vacated the unit.
According to the SDRA:
If no such statement and receipts, or copies thereof, are furnished to the lessee as required by this Section, the lessor shall return the security deposit in full within 45 days of the date that the lessee vacated the premises, delivered in person or by postmarked mail directed to the last known address of the lessee or another address provided by the lessee. If the lessee fails to provide the lessor with a mailing address or electronic mail address, the lessor shall not be held liable for any damages or penalties as a result of the lessee’s failure to provide an address.
765 ILCS 710/1 (a)
If the landlord fails to return the deposit within 45 days of the tenant vacating the unit and has not fulfilled the SDRA’s requirements for retaining the deposit, or if the landlord has complied but done so in bad faith, the tenant has a claim for two times the amount due, plus court costs and reasonable attorney’s fees.
The Old Illinois Security Deposit Return Act
The Illinois Security Deposit Return Act has been amended numerous times throughout the years. However, the 2024 amendment is the most important of these amendments. Prior to 2024, the SDRA only applied to buildings containing 5 or more units.
The old law said:
Except as provided in subsection (b), a lessor of residential real property, containing 5 or more units, who has received a security deposit from a lessee to secure the payment of rent or to compensate for damage to the leased premises may not withhold any part of that deposit as reimbursement for property damage unless…
765 ILCS 710/1(a)
A plain reading of this statute seems to indicate that the old SDRA applied to all buildings with 5 or more units, which is a substantial number of buildings, especially in the Chicago area. However, in the Wilson v. Yu court decision, the judges ruled that the old SDRA only applied to buildings where the specific tenant’s landlord owned 5 or more units. This interpretation excluded almost all condominium buildings. (It is rare for a condominium owner-landlord to own 5 or more of the condominiums within a single building.)
Thus, the old SDRA primarily applies to large apartment-only buildings and not condominium buildings. Moreover, the old SDRA is rarely useful in Chicago since the RLTO applies to nearly all units in buildings of 7 units or more. Thus, the old SDRA is only applied in Chicago proper in owner-occupied apartment buildings of 5 or 6 units, which are exempt from the RLTO, but not the SDRA.
In cases where it applies, the old SDRA gives tenants substantive rights similar to those found in the new SDRA, as discussed above.
Breach of Contract
If a Chicago tenant is not covered by the RLTO or SDRA, the tenant can rely on a breach of contract claim as a last resort in a security deposit dispute. Thankfully, with the passage of the new SDRA, future tenants will not need to rely on breach of contract claims.
A breach of contract claim arises when people or organizations make an agreement and then one party violates the agreement, which harms the other party. In the security deposit context, a landlord promises to return a security deposit if certain conditions are met. If the landlord fails to do so, despite the conditions being met, the landlord has breached the contract.
The viability of a breach of contract claim is difficult to discuss because every lease is different, and the claim relies on the language of the lease itself. However, many leases have a standard security deposit provision that resembles the following:
If Landlord has accepted a security deposit to ensure tenant’s specific performance of each and every agreement, covenant, rule and obligations contained in this lease, landlord shall have the right, but not the obligation, to use the security deposit in whole or part, as a setoff against any default, either in payment of rent or other breach, which results in any loss to landlord. If tenant has complied with all obligations under the lease, landlord hall, within 45 days after tenant vacates the premises, refund the security deposit.
Under the language of this provision, the landlord can withhold a security deposit for any lease violation, including unpaid rent. The tenant could argue that the violation must cause the landlord financial harm to lose the deposit, but whether a court would require proof of financial harm is unclear. If the tenant complies with the lease, the deposit should be returned within 45 days.
The RLTO, CCRTLO, and SDRA require that landlords provide evidence of repair costs when withholding security deposit funds. However, I have almost never seen a lease that requires the landlord to provide tenants with evidence of repair costs. In practice, this means the landlord can simply keep the deposit without communicating any reason to the tenant if the tenant’s unit is not covered by the RLTO, CCRTLO, or SDRA. This makes it difficult for tenants to win breach of contract cases.
Moreover, the tenant’s ability to recover their security deposit for a breach of contract is limited. When a party breaches a contract, the other party can ask the court to be given what they lost because of the breach. In the case of security deposits, this means the landlord should return the tenant’s deposit in accordance with the terms of the lease. Tenants must demonstrate that they did not violate the lease—or, if they did, that the landlord kept too much of their deposit. If the tenant is successful, the court will award the amount of money the landlord should have returned. Because leases never provide for a penalty, tenants must go through the trouble of litigation to get the amount the landlord should have given them in the first place.
On top of the limited remedy available in a breach of contract case, leases vary in their handling of attorney’s fees. This is particularly important in security deposit cases because attorney’s fees almost always far exceed the amount of the security deposit.
If a lease does not have a provision addressing attorney’s fees, then each party pays their own fees in a legal dispute. In that case, it seldom makes sense to hire an attorney because deposit claims are not large enough to justify the expense.
Leases commonly have landlord-only attorney’s fees provisions, stating that if the landlord incurs fees because of a lease breach, the tenant must pay the landlord’s fees. These provisions used to be very problematic, but Illinois recently enacted the Illinois Consumer Contract Reciprocal Attorney’s Fees Act which turns one-sided fee shifting into two-sided fee shifting if the landlord attempts to claim fees. If the landlord tries to claim fees, then these provisions are treated the same as prevailing party fee provisions (discussed below). If not, then everyone pays their own fees.
Finally, some leases have prevailing party attorney’s fees provisions. These provisions award attorney’s fees to whomever wins the case. This can make a breach of contract security deposit claim viable, but also risky. If tenants win, they are awarded their deposit and all their attorney’s fees. If they lose, however, they will have to pay the landlord’s fees (in addition to their own fees), which can be quite expensive.
Overall, making a security deposit claim for a breach of contract is seldom worth the expense or risk. When tenants contact me and this is their only option, I typically tell them that it’s too risky and expensive to proceed with an attorney and their best option is to file a case without an attorney.
Summary of Chicago Security Deposit Law
Most residential tenants within the Chicago city limits are covered by the Chicago Residential Landlord and Tenant Ordinance. Unless the tenant lives in an owner-occupied building of 6 units or fewer, chances are that the RLTO applies.
The RLTO is a comprehensive regulation that provides many rights and remedies to tenants. With respect to deposits, it requires:
- A comprehensive security deposit receipt;
- Segregation of security deposits;
- Disclosure of the location where deposits are kept;
- Interest payments;
- Disclosure of deposit transfers;
- Disclosure of ownership transfers;
- Itemization of alleged damage;
- Proof of repairs; and
- Return of a deposit within 45 days.
If a landlord violates the RLTO’s security deposit provisions, the tenant is typically entitled to a penalty of two times the deposit, plus return of the deposit itself, plus attorney’s fees and case costs.
If a Chicago tenant is excluded from the RLTO and either vacated their unit on or after January 1, 2024, or vacated a unit in a large apartment building prior to January 1, 2024, the tenant is protected by the Illinois Security Deposit Return Act. The SDRA is less comprehensive than the RLTO, but it still imposes the following requirements on landlords:
- Itemization of alleged damage;
- Proof of repairs; and
- Return of a deposit within 45 days.
If the landlord violates the SDRA, the tenant has a claim for two times the amount due, plus attorney’s fees and case costs.
In the event that tenants are not covered by either the RLTO or SDRA, they can bring a claim for breach of contract to recover their deposit in situations where the landlord retained it in violation of the lease.
Conclusion
For as long as there have been security deposits, dishonest landlords have treated them as an additional income stream. When deposits are left unregulated, tenants are often helpless due to the inefficiencies and costs associated with the legal system, and because they have less bargaining power and wealth than landlords.
To help level the playing field, Illinois enacted the Security Deposit Return Act (SDRA) and Chicago passed the Residential Landlord and Tenant Ordinance (RLTO). These two laws regulate the treatment of most security deposits for Chicago tenants and make it possible to recover a stolen deposit economically.