Are You Applying The Correct Security Deposit Interest Rate?

Chicago and Evanston, Illinois Landlords:
The 2010 Illinois Security Deposit Interest Act (“Act”) rate (0.095%) is again higher than the Chicago Landlord Tenant Ordinance (“RLTO”) rate (0.073%).  This also happened in 2009, when the Act rate was (0.25%) and the RLTO rate was (0.12%).  The Act applies to all landlords who lease 25 or more units in either a single building or a complex of buildings located on contiguous parcels of real property (“Affected Landlords”).

Affected Landlords in Chicago and Evanston must pay the higher of the two rates in order to avoid severe penalties under the Act or RLTO.  The Illinois Act, like the Chicago Residential Landlord Tenant Ordinance, imposes harsh penalties on landlords for noncompliance.  Tenants may recover
an “amount equal to the amount of the security deposit, together with court costs and reasonable attorneys fees” from landlords who fail to apply
the proper interest rate.  765 ILCS 715/2. 

Take immediate precaution to avoid present and
future liability:

• Determine whether the Act applies to you before you pay interest on any security deposits held in 2009.  Remember that the RLTO rate still applies to buildings with
  less than 25 units. 
• If the Act applies, pay the Act rate of 0.25% on all 2009 security deposits and cure any deficient payments.   If you have already paid interest on 2009 security deposits at the Chicago RLTO rate of 0.12%, issue a second payment immediately for the difference.  Remember that both the Illinois Act and RLTO allow 30 days for payment of interest.  Be sure to cure any underpayment within this 30-day window.
• Train your staff to deal with the variation between the Illinois Act and Chicago RLTO.  Even though the Chicago RLTO interest rate
  is currently inapplicable, you will violate the RLTO if you fail to attach the Chicago interest rate to any 2010 lease. Accordingly, train your staff to:

1. attach the Chicago rate to each lease; but
2. pay the Illinois rate at the end of the
   12-month lease term. 

These recommendations are easy to implement compared to the consequences of inaction.  If you have questions or would like additional information on this subject, contact Ari J. Scharg at (312) 540-7514 or ascharg@querrey.com.

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Ari Scharg is a member of the firm's litigation practice group and focuses his practice in the areas of commercial, real estate, employment and tort defense.  In addition, Mr. Scharg works closely with startup companies and investment groups. He enjoys counseling entrepreneurs and drafting operating agreements and private placement memorandums.