Illinois Landlords, Tenants and Residential Security Deposits

Landlords know how important security deposits are in residential leases. The threat of losing their security deposit can keep tenants honest. Good landlords don’t want to hold back the security deposit after the tenant leaves; they would much rather have their home or apartment back in good shape. Tenants, too, look forward to the return of their security deposit when they move out. Illinois has two laws governing security deposits, and it is easy to run afoul of them:

1. The Security Deposit Interest Act: This law requires all landlords who have 25 or more units in one building or complex to pay interest on security deposits to their tenants, so long as the landlord hold the security deposit for more than 6 months. The interest rate is calculated based on the savings account interest rate payable by the state’s largest bank at the end of the year preceding the year in which the tenancy commences. For leases that started in 2007, that interest rate is .5%; for leases that started or will start in 2008, that interest rate is .35%. For leases that will start in 2009, the security deposit interest rate will be calculated on December 31, 2008.

But be careful! Chicago and certain other municipalities have different rules regarding security deposits and calculate the security deposit interest in a different manner. For example, in Chicago, the interest rate on security deposits for leases entered in 2007 is 1.68%; for 2008 leases, it’s 1.26%. If you are a landlord, before paying any interest, you should check with the municipality in which your units are located to determine the correct interest rate. Fortunately, most municipalities do follow the Security Deposit Interest Act and will not have their own interest rate on security deposits.

2. The Security Deposit Return Act: Landlords who have 5 or more units may withhold all or a portion of a tenant’s security deposit if the following conditions are met:

a) Within 30 days after the tenant leaves, the landlord must give the tenant an itemized list of the damage the tenant caused, along with the cost (either actual or estimated) of repairing the same.

b) If the actual cost is provided in the notice, the landlord should include a copy of the paid bills and receipts for the repairs. If an estimated cost is provided in the notice, then the landlord must provide paid bills and receipts for the repairs within 30 days after the notice in (a) above is provided.

c) The notices to the tenant shall either be hand-delivered or mailed to the tenant’s last known address.

If the landlord follows the rules above, and if the cost of the repairs is reasonable, the landlord may withhold the portion of the security deposit necessary to complete the repairs, or, if the cost of repair meets or exceeds the security deposit, the landlord may withhold the entire security deposit. If the landlord fails to comply with the requirements of (a), (b) and (c) above, the landlord must return the entire security deposit to the tenant within 45 days after the tenant leaves.

Landlords beware: If you hold back all or part of the security deposit and a court finds that you acted in bad faith or did not follow the provisions of the Security Deposit Return Act, you could be liable to your tenant for twice the amount of the security deposit, in addition to the tenant’s court courts and attorneys’ fees.

Please note: The rules for security deposits for City of Chicago landlords are different! City of Chicago landlords are subject to the Chicago Residential Landlord Tenant Ordinance. It is important for Chicago landlords to comply with the provisions of that ordinance. For more information on the City of Chicago’s rules pertaining to security deposits, click here.