As I See It: “Mr. Postman, Wait and See” as to RLTO Reform

Mike Glasser, RPBG President
February, 2018


It has been 12 years since I last assumed the mantle of President of the Rogers Park Builders Group, so it’s been a long time since I last wrote a President’s column for The Builder. With so many issues involving Chicago, Rogers Park, and general landlord topics from which to choose, one could understandably wonder what topic I would cover in this – my first post in my second stint as RPBG President.

After much thought, my choice of topics is – drum roll, please… 

At $0.49 cents to send a letter first class, the cost of postage is too darn high!

Before you shake your head and move on to the next article, let me explain why, with many deserving topics, I selected this as the subject of my first column.

As many of you know, the Chicago Residential Landlord Tenant Ordinance (RLTO), enacted in 1986, requires landlords to pay interest on tenant security deposits. This interest must be paid at specific rates – tied to certain indexes.

The City Comptroller calculates the change of interest rate that landlords must pay on security deposits. For 2017, we must pay .01% (that is, one percent of one percent). Upon lease renewal, we must send our tenants who have posted security deposits interest at this published rate.

So, for a tenant with a deposit of, say, $1,200, the annual check amount is $0.12 (yup, that’s twelve cents!).

In order to comply with statutory Chicago obligations, the cost of postage for mailing the security deposit interest exceeds the actual interest amount more than fourfold!

Who do we blame for this?

That’s right! It’s the darn Postmaster’s fault!

The problem for landlords are the draconian penalties imposed on landlords who fail to strictly comply with the ordinance. This is why nearly all Chicago landlords no longer accept security deposits from tenants.

For any number of minor violations, lawyers representing tenants can file suit, collect double the amount of the security deposit and attorneys’ fees. In some instances where class-action status can be obtained, the legal bills can be substantial. These judgments often result from inadvertent and otherwise harmless landlord oversights.

It is a tough fight because language in the RLTO precludes a judge from using his or her discretion when awarding damages. 

No matter how minor the landlord oversight, if a judge finds that a landlord erred in even the most minor of ways, the ordinance states that judges “shall” rule in the tenant’s favor. The judge has no choice but to assess double damages, lawyer fees, etc., even for minor violations where tenants suffer no genuine harm. 

Often, all a tenant’s lawyer needs to do is inform an unsuspecting landlord of the technical violation, demand that the landlord release the tenant from his or her lease and pay his pre-calculated legal fees. Failure to comply can result in protracted and costly legal battles with uncertain results. 

Clearly, tenant lawyers are motivated to use this ordinance on higher end apartments. Double damages on a $2,500 security deposit generate higher returns than on smaller security deposit for lower income residents (arguably, those whom the RLTO was designed to assist).

Higher income tenants thus have a strong weapon at their disposal – most often used to break their leases at will – as the tenant lawyers are skilled at finding even the most technical of landlord oversights.

Isn’t this yesterday’s news? As I said, most experienced Chicago landlords no longer accept security deposits. But this still leaves at risk many smaller, “ma and pa” landlords who are unaware of the draconian nature of this ordinance, and who are greatly impacted by such suits.

But even sophisticated landlords should not be complacent – landlords who do not accept security deposits must still comply with technical posting requirements involving security interest. The consequences for not doing so can be severe.

That’s right. Even tenants who do not pay a security deposit can bring legal actions against landlords who fail to post the schedule listing the amount of interest that would be owed if they did have a security deposit.

Huh?


This is no small matter – in the past few years, local landlords who don’t accept security deposits have had class action lawsuits filed against them, ultimately incurring legal fees and damages for tens of thousands of dollars … and all for what?

This begs the question: What harm is caused to a tenant who has no security deposit and who is therefore not entitled to interest on his (non-existent) security deposit if that tenant does not receive a schedule of applicable interest rates on that (non-existent) security deposit from his landlord?  The obvious answer is – NO ONE!

Many Chicagoans rely on the landlord community – especially those of us who own buildings in neighborhoods – to provide a bulk of the city’s housing. Most landlords have no qualms operating with fair and unbiased rules.  Let’s focus on what is fair, as everyone (except some unscrupulous tenant lawyers) benefit by thoughtfully written and implemented laws.

What would constitute such relief? 

Judges ought to have the discretion to decide what relief, if any, to impose on a landlord who fails to strictly conform to the RLTO. Instead of mandating that a judge “shall” impose certain capricious penalties on landlords (breaking leases, double damages, cover plaintiff’s legal fees), give the judge the ability to do what he or she is supposed to do. Give judges the discretion to make their decisions on a case by case basis, based on the merits of each case. Rather than mandating what a judge “shall” do, the RLTO should allow the judge discretion in deciding what he or she “may” do.

Or, perhaps the City Council ought to consider my own common sense proposal:

Landlords should only be required to pay interest on security deposits if the amount of the interest payment is equal to or greater than the cost of postage for sending the check!