Saturday, September 20, 2008

Security Deposit Interest in Urbana

Urbana has it's own local ordinance for the landlord tenant relationship that regulates security deposits. Chapter 12.5 of the Urbana City Code, "Landlord-Tenant Relationships" applies to almost every rental in town, including houses, owner-occupied buildings, condo units, etc. Next door in Champaign students are only covered by the statewide Illinois Security Deposit Return Act (must be 5 or more units in the building) and Illinois Security Deposit Interest Act (must be 25 or more units in the building or complex).

One special source of confusion in Urbana is its security deposit interest rule. Section Sec. 12.5-19 of the Urbana City Code regulates security deposit interest. It requires that:

(a) A landlord who receives a security deposit of one hundred dollars ($100.00) or more from a tenant to secure the payment of rent or to compensate for damage to property shall pay interest to the tenant, computed from the date the deposit is paid, at a rate equal to the interest paid by the largest commercial bank, as measured by total assets, having its main banking premises in Champaign County, Illinois, on minimum deposit passbook savings accounts as of the thirtieth of June immediately preceding the inception of the rental agreement on any such deposit held by the landlord for more than six (6) months.

(b) The landlord shall, within thirty (30) days after the end of each twelve-month rental period, pay to the tenant any interest, by cash or credit to be applied to rent due, except when the tenant is in default under the terms of the lease. For the purposes of this provision, default shall mean nonpayment of rent or a successful claim by the landlord for possession of the premises for good cause other than nonpayment of rent. A landlord who willfully fails or refuses to pay the interest required by this article shall, upon a finding by a circuit court that he/she has willfully failed or refused to pay, be liable for an amount equal to the amount of the security deposit, together with court costs and reasonable attorney's fees.

Urbana therefore requires ALL landlords to pay interest on security deposits, no matter how many apartments are in their building, if the security deposit is $100 or more. The "Security Deposit Return Summary" from a fairly large Champaign-Urbana rental company shows a common mistake:

The security deposit taken by the company is $590, but they expressly state that there is an interest credit of $0 because "Building has less than 25 units, no interest is due according to State of Illinois Law." It's true the state of Illinois law wouldn't require this landlord to pay interest on the $590 security deposit because the building has only 5 apartments. However, Urbana law does. This landlord's obvious familiarity with security deposit interest law would likely be enough evidence to show they "willfully failed" to pay the interest due under the Urbana City Code, and subject the landlord to penalty damages for the tenant equal to the whole security deposit, plus costs and attorney fees.

On the flip-side, we have also been contacted by tenants at large apartment complexes in Urbana with more than 25 units. Their management companies extract $99 security deposits and do not pay interest. These landlords obviously feel that, because the Urbana law does not apply, they are free to pay no interest. However, it is unlikely that compliance with the Urbana law can relieve these landlords from complying with the Illinois Security Deposit Interest Act, which requires payment of interest on security deposits of any amount at complexes with 25 or more units.

With few exceptions, every Urbana landlord has to pay interest on security deposits of $100 or more, and every Urbana landlord of a complex with 25 or more units must pay interest on security deposits of any amount.


Suz said...

My husband & I signed a lease in July,2008, to rent a duplex in Urbana. The lease included a clause stating no interest would be paid on our security deposit. Our landlords own a realty company in Urbana, he is also a board member of the Urbana Business Association. Would this clause have been legal? Do they owe us money on our $1000 security depost after all?

Chicago Deposit Law said...

Yes they do, because your rental was in Urbana, and because the deposit was more than $100. They were required to pay interest on your deposit and if they did not you might pursue damages