Illinois Security Deposit Requirements for Buildings with Fewer than 5 Units

Security Deposit Requirements in Illinois

Overview of Illinois Security Deposit Laws for Properties with Less Than 5 Units
All landlords of residential properties in Illinois must follow state security deposit laws. However, unlike some other states, these laws are not comprehensive. The state laws are generally considered to be the "default" provisions that apply when a rental property lacks a lease or a lease provision on a specific point.
Statutes (the approved acts of the legislative branch) are enacted by the General Assembly and then are subject to amendment. As a result, security deposit laws can change over time. Checking the latest versions of their texts is often prudent to ensure compliance with the latest laws.
For example, a page on the legal website of Nolo says, "If your premises have four or fewer units and you are not renting through a government program, such as the federal Section 8 program, your state law will probably govern how you must handle security deposits." No rules or regulations exist in Illinois that depart from common law standards for a lease for less than one year, aside from tight time schedules when it comes to the return of a security deposit (and any claims against it by landlords in the event of damage/breach of contract) .
The law says landlords cannot charge more than one-and-a-half months’ rent as a security deposit. Any amounts exceeding that maximum must be waived. Owners are also forbidden from collectively taking more than two months’ rent as a security deposit: "if the owner and lessee are the parties to the lease, the owner may not condition the payment of the security deposit upon a transfer fee, a convenience fee or prior rental charges for one month’s rent except as permitted in paragraphs (1) and (4) of this subsection."
If an owner or manager is acting in bad faith, the act permits a tenant to collect one month’s rent or an amount equal to the security deposit and damages in the amount of his or her actual damages, whichever is greater. Owners who knowingly violate the law face "the greater of $100" in fines per instance or violation.
Landlords must return the security deposit within 45 days after the lease ends and the property is vacated. The statute permits a good faith deduction from the deposit only for amounts reflecting actual physical damage beyond normal wear and tear.

Exemptions for Smaller Buildings

Although the Illinois Security Deposit Return Act explicitly requires security deposits to be held in either an interest-bearing account or from a net tenant’s security deposit for a property containing 5 or more units, if a building has less than 5 units, the parties have an option of governing their rights and obligations by common law or by contract. § 5. In fact, there are no specific laws that regulate security deposits for properties with less than 5 units. That said, these properties are usually governed by common law principles of bailment, which means the landlord or the property manager cannot use the tenant’s security deposit without express consent. Barhoush v. Behr, 275 Ill. App. 3d 388, 655 N.E.2d 247 (1st Dist. 1995). Therefore, the landlord cannot deduct any money from a tenant’s security deposit for casual wear and tear, or depreciation. However, the Court in Barhoush indicated it was not deciding whether a landlord could still recover those costs by charging a tenant for casual wear and tear separate from its return of security deposit obligations. Id.
So, while the common law provides that items such as casual wear and tear are not the tenant’s responsibility, it may also provide the landlord with a right to recover those items in some other fashion. Title 77, Chapter I, Part 870, Section 1050.110 of the Illinois Administrative Code provides for the "Minimum Standards of Habitability", specifically Article B, part 2, entitled "Building Maintenance" contains standards for bathrooms, kitchens, and plumbing that must be met. See 77 Ill. Adm. Code 870.350 (Standards for Plumbing Systems, Fixtures, and Appurtenances.), 3 (Standards for Heating Supply Systems.), and 4 (Standards for Kitchen Facilities and Domestic Hot Water Systems). A landlord may seek to require a tenant to pay for repairs that are the tenant’s responsibility under the Minimum Standards of Habitability.

Small Buildings Landlord Obligations

The Illinois Security Deposit Act, which governs all security deposits for residential leases in Illinois, contains a section that applies to buildings containing less than five units. This section details the responsibilities of landlords under such a lease and how landlords are required to handle the return of security deposits.
In 765 ILCS 710/1, the Illinois Security Deposit Act explains that landlords are required to place any security deposits in a "separate interest bearing bank account" for the purpose of "securing the lessee’s compliance with the terms and conditions of the lease." This section applies to landlords of any building with fewer than five residential units. This law is crucial for residential leases under such a landlord. The law states, "Lease" means an agreement, written or oral, between a landlord and tenant for either a term of 6 months or more or more than 25 weeks. (765 ILCS 710/2.) Perhaps the most important takeaway from this section of the law is this: If the residential lease is for a term of 5 months or less, and/or it is for less than 25 weeks, no interest must be paid on the security deposit, nor are there any requirements for the tenant to receive interest.
According to the law, landlords of residential leases for up to 25 weeks in a property with less than five residential units are not even required to return the security deposit back to the tenant. If the landlord has a different agreement with his or her tenants, this agreement will govern instead. (765 ILCS710/3.)
The second part of the Illinois Security Deposit Act states that landlords of properties with fewer than five units are required to give tenants a list of what they are doing with the security deposit within five days of receiving it. Any parties that are already aware of the existence of the building in question can insist on seeing the list of what is being done with the security deposit, and the landlord must comply within two weeks. (765 ILCS 710/4.)
Once the tenant leaves a building, the landlord has 30 days to do the following: In addition to these requirements, the landlord must justify and explain the amounts deducted from the security deposit to reflect the reasonable costs of repair, maintenance or cleaning that is attributable to the tenant. This is important because, in many cases, landlords will attempt to justify a cleaning fee by stating that the property simply needed a deep clean when it seldom needed one at all.
Under the Illinois Security Deposit Act, tenants of buildings with less than five residential units have valuable rights when it comes to recovering a security deposit. They have the right to know exactly where the deposit has been placed, the right to obtain a full accounting of what is done with the deposit once the landlord has time to develop this accounting, and the right to know what deductions were made once the tenant has vacated – including evidence to support that the deductions were warranted.
It is important to note that if there is a signed writing or a lease in place that discusses the handling of the security deposit, this writing or lease will likely be controlling. However, if the lease does not mention the handling of a security deposit, then the law under the Illinois Security Deposit Act will be in effect. This should provide some comfort level for the tenant because it clearly outlines what the landlord is required to do with the deposited funds.

Tenant Rights and Protections for Small Buildings

In a situation in which a property has four units or fewer, tenants have basic rights when the small property is rented by a landlord. Tenants of properties with less than five units are protected under the Illinois Residential Tenant Landlord Act, specifically the 765 ILCS 705/1. This act allows tenants to expect that the rental unit be insulated from dampness, termites and rodents, that the rental unit has hot water at all times, that gas-heated units have heat during the winter months, that common areas are maintained in a clean and sanitary manner and much more . Tenants can be assured of these rights and protections when renting a unit from a landlord. If those landlords do not respect these agreed upon rights and protections, the tenant is able to seek recompense in the Illinois courts by suing for three times the monthly rent payment in damages.

Common Issues and Resolutions

Disputes between landlords and tenants over security deposits can range from relatively minor frays over, for example, the need for a more stringent cleaning of the unit to larger disputes over hundreds of dollars in repair costs. The good news is that most small to mid-sized disputes can be avoided or quickly resolved.
The most common types of disputes are related to rent and cleaning costs. In a rent dispute, for example, a landlord wants the tenant to continue to pay rent (and utilities) while the unit is not fit to live in due to repairs such as broken pipes or leaking air conditioning. The tenant does not want to pay for a unit that cannot be lived in. In a cleaning costs dispute, often the disagreement arises due to issues such as whether the unit was cleaned satisfactorily upon move out or whether any paint was needed for scratches and any other damages. In both cases, the solution is to look to the lease and the Illinois Security Deposit Returns Act to determine how to resolve the dispute. In both situations, the Act lays out in what circumstances a tenant is liable for rent and other costs for work that is remedial in nature (part of normal wear and tear), and in what circumstances a tenant should not be required to pay for such damages. For example, the Act provides that a landlord may not deduct rent or other costs for repairs (including cleaning of the unit not needed as a result of damage by the tenant) from the security deposit where the repairs are "the result of usual wear and tear"; and that "reasonable repair" means a repair or replacement which return the apartment to "the condition it was in when the tenant took possession, less reasonable wear and tear." 765 ILCS 710/1. When in doubt, the landlord should make sure that he is acting reasonably in light of his obligations under the lease and Illinois law. More importantly, if the dispute appears to be bordering on becoming litigious (or if the landlord chooses to litigate the issue anyway), a landlord should remember that while he might think that some of the costs he’s incurring to remedy the situation are appropriate for him to request payment for out of the deposit, the prevailing legal standard is a sound, impartial determiner of who pays – or whether the landlord is permitted to reduce the deposit in the first place.

Helpful Hints for Landlords and Tenants

Illinois security deposit regulations apply to landlords with two or more units. This means that the practical tips below are not applicable for single-family buildings.
Maintain Proper Records
For landlords, the number one tenant’s security deposit pitfall is an inadequate recordkeeping system. Lack of proper documents to back up a defense to the tenant’s security deposit claim often leads to settlements that favor the tenant. We suggest that landlords utilize a security deposit checklist, which lists all security deposit aspects that must occur pre-move in and post-move out (i.e. condition report forms, photographs, utilities bill records, repair estimates and invoices, move out walkthrough and security deposit refund document) and have a standardized file for each security deposit tenancy. If a landlord does not understand the security deposit regulations, we strongly recommend that a real estate attorney or another professional be consulted. It is much easier to implement a compliance system than to react to a suit after the fact .
Protect Yourself with a Security Deposit Receipt Form
If a landlord does not provide a tenant with a written receipt for a security deposit, especially if a cash amount is involved, the landlord opens the possibility for litigation. The best way to avoid this risk is to always provide the tenant with a security deposit receipt form. The security deposit receipt form should have language that the deposit is placed in a federally insured institution in Illinois, the account number and whether the account bears interest. If there is a remainder on the security deposit, the landlord should provide the tenant with a copy of the final accounting.
If You Are a Tenant and the Landlord Wants to Return the Security Deposit Without a Written Receipt
A notice stating the landlord’s intent to either withhold or return all or part of a security deposit must be sent via United States Mail within 30 days after the termination of a tenancy. However, if the landlord wants to return the security deposit and not give any reason for withholding the security deposit, the notice must be sent via United States Certified Mail.