Saturday, November 26, 2011

Chicago Rents Going Up

We recently published a note about seasonality in Chicago rents based on predictable peaks and troughs in renter demand every year, in the summer and winter respectively. The same graph of internet searches for "Rental" in Chicago showed a rising baseline for that search starting in 2008.

We guessed this was related to everyone (1) losing their home, (2) no longer qualifying for a loan to buy a home, or (3) feeling afraid to buy a home.

And indeed, Chicago rents for 2 bedroom apartments are going up since bottoming out in 2007 (when everyone finally figured out that anyone could buy a few condos). Modest gains every year are to be expected as part of inflation, but the pronounced increase from 2008 to the present might be evidence of a new trend based on fundamental changes in the economy.

Developers appear to believe the trend is long term. However, many developers and banks that lent to them also thought the boom in condominium sales would last longer than it did.

The Loop has seen construction of three apartment towers finished since 2009: at 161 W. Kinzie, 227 W. Washington and 210 N. Wells. Until these, there were not new apartment buildings in the Loop for a long time.

Other projects not far from the Loop that initially called for construction of condominiums have been reformed in favor of rental apartments. Next to the condominium tower finished at 860 W. Blackhawk, a neighboring tower at 840 W. Blackhawk that was initially expected to house more condo units is now being finished as an apartment tower.

The lenders financing these projects must believe Chicago is in for a protracted period of healthy rental demand, at least near the Loop. Only time will tell. After boasting an 8.8% unemployment rate slightly under the national average in October, 2010, Chicago's unemployment rate has risen above the national average to sit around 9.7% in October 2011. Apartment buildings full of people who can't pay rent are worse collateral than empty houses.

The message for renters? Don't sign up for a longer lease like two or more years just because rents are going up and you want to "lock in" a good rent. You might lock in a bad one. Instead, if you can, try to find a Chicago apartment and sign the lease between Thanksgiving and Christmas. The key advantage to renting over owning is flexibility. Now is not a bad time to "stay liquid." Good luck.

Thursday, September 22, 2011

Evanston Security Deposit Law Requires a Real "Amount" in 21 Days, not "TBD"

After a 2010 move-out, the landlords kept a whole $2650 security deposit from a group of three Northwestern University students in Evanston, and interest. The landlord claimed to have sent the tenants an e-mail within 21 days after they moved out, which stated that the whole deposit was being kept for various listed items in the amount of "TBD" (to be determined).

After a trial the judge in Skokie held that the tenants were not entitled to any of their deposit back, or relief under the Evanston Residential Landlord and Tenant Ordinance (ERLTO) because the landlord did not have to account for the damage within the 21-day accounting requirement if the property damage took more than 21 days to fix.

On appeal, the Court of Appeals reversed the judgment against the tenants. The Court of Appeals opinion is here. This opinion is subject to petition for rehearing and/or review by the Illinois Supreme Court and so is not necessarily final.

The Court of Appeals held that "the trial court erred when it found that defendants were not required to include a dollar estimate of the damages when they notified plaintiffs that they intended to withhold part of the security deposit. Defendants' use of 'TBD' as a placeholder was insufficient to satisfy the ERLTO."

The Court of Appeals concluded, saying:

"Defendants failed to give plaintiffs proper notice of deductions from their security deposit and failed to return the balance of the security deposit within 21 days as required by section 5-3-5-1(C) of the ERLTO. Defendants failed to prove their affirmative defense of compliance with the ERLTO, and they are therefore liable to plaintiffs. Moreover, defendants are not entitled to any setoff of plaintiffs' damages because they did not assert a counterclaim against plaintiffs. It was therefore error for the trial court to enter judgment in favor of defendants. We accordingly reverse and remand with directions to enter judgment for plaintiffs and for the determination of damages and reasonable attorney fees pursuant to section 5-3-5-1(F) of the ERLTO."

Wednesday, September 14, 2011

Best time to rent an apartment in Chicago?

Supply and demand dictate the market rent for an apartment. Demand can be estimated from the volume of Chicago internet searches for "apartments":
It's a landlord's market out there in America, and especially Chicago. Foreclosures, layoffs, wiped out savings, and destroyed credit are pushing more and more people into renting instead of owning. Also, people who otherwise would have bought a first home in the last two years have seen the news and reconsidered an "investment" in real estate, opting to rent instead. Even if they wanted to buy, lending requirements are too stringent for many to qualify.

While home values remain depressed, monthly rental rates are healthy and rising. If you're a renter, one thing you can do to strengthen your position is start your search in the winter, not the summer.

The scramble to find an apartment in Chicago consistently peaks in late June, and bottoms out around Christmas. You can confidently rely on the fact that, around New Years, you are competing with significantly fewer apartment hunters. That means you ought to be able to negotiate a lower rent, more flexible term, or beneficial utility payment arrangement.

Finally, the graph does demonstrate that since December, 2008 the baseline volume of searches for apartments in Chicago on the internet has increased. Seasonality still rules, but overall competition for units in the City is increased and increasing since stock markets dove in the winter of 2008-2009. Especially after expiration of the first time home buyer "tax credit" in April 2010, the hunt for Chicago apartments has intensified.

Sunday, August 28, 2011

New Law Requires Most Cook County Landlords to Change Locks With New Tenancy

An amendment has passed to the Illinois Landlord and Tenant Act which creates a new Section 765 ILCS 705/15 "Changing or rekeying of the dwelling unit lock."

The new Section requires that landlords in Counties with more than three million people (Cook County) change or rekey the locks for a rental unit at the start of each new tenancy, unless it is an owner occupied building with four or fewer units. This new law does not just apply to Chicago or Evanston, but all of Cook County.

If the landlord does not comply with this new rule, which will take effect January 1, 2012, then that landlord may be liable to the tenant for damages sustained because of stolen property by someone with the old tenants' key.

The Section says:

(a) A lessor of a dwelling unit shall comply with the

provisions of this Section regarding the changing or rekeying

of the dwelling unit lock. For the purposes of this Section,

"dwelling unit" means a room or suite of rooms used for human

habitation and for which a lessor and a lessee have a written

lease agreement.

(b) After a dwelling unit has been vacated and on or before

the day that a new lessee takes possession of the dwelling

unit, the lessor shall change or rekey the immediate access to

the lessee's individual dwelling unit. For the purposes of this

Section, "change or rekey" means:

(1) replacing the lock;

(2) replacing the locking or cylinder mechanism in the

lock so that a different key is used to unlock the lock;

(3) changing the combination on a combination or

digital lock;

(4) changing an electronic lock so that the means or

method of unlocking the lock is changed from the

immediately prior tenant; or

(5) otherwise changing the means of gaining access to

the lessee's locked individual dwelling unit so that it is

not identical to the prior lessee's means of gaining access

to the lessee's locked individual dwelling unit.

(c) If a lessor does not change or rekey the lock as

required in this Section, and a theft occurs at that dwelling

unit that is attributable to the lessor's failure to change or

rekey the lock, the landlord is liable for any damages from the

theft that occurs as a result of the lessor's failure to comply

with this Section.

(d) The provisions of this Section do not apply if the

lessee has obtained the right to change or rekey the dwelling

unit lock pursuant to a written lease agreement.

(e) The provisions of this Section do not apply to (i) an

apartment rental in an apartment building with 4 units or less

when one of the units is occupied by the owner or (ii) the

rental of a room in a private home that is owner-occupied.

(f) This Section applies only in counties having a

population of more than 3,000,000.

Under part (b)(5), the Illinois Legislature protected this law from becoming outdated by doors that rely on biometric locks or keyless locks. Essentially, whatever mechanism the door uses for security, its means of access must be changed or reset so that the new tenant, and only the new tenant, has access (in addition to the landlord and authorized agents of the landlord). This will certainly stimulate the economy for locksmiths in Cook County.

Thursday, August 4, 2011

Chicago landlord in foreclosure or losing unit for unpaid condo assessments!

More and more tenants, especially in Chicago, are finding themselves subject to getting evicted because their landlord has essentially not been paying their rent. Sometimes, when someone is renting a condominium unit in Chicago, the condo association hasn't been paid its assessments for months. Or, the mortgage lender hasn't been paid. Often it is both.
We are presently getting more calls from tenants who are subject to lose possession thanks to unpaid assessments, as many banks have temporarily put their foreclosure actions on halt while condo associations have not. So even though Bank of America might not be moving forward on its foreclosure case because of a questionable Countrywide Home Loan mortgage, the condominium association will not hesitate to re-take possession.

Section 5-12-095 of the Chicago Residential Landlord & Tenant Ordinance (RLTO) required your landlord to give you written notice about any foreclosure pending against the unit before you entered into a lease, and if they don't, you might win penalty damages against the landlord equal to $200.00 plus costs and attorney fees. And that can be a basis to terminate the lease. But this section does not apply to condo association evictions that will put you out just as fast, or faster, than a foreclosure. In other words, the landlord was not specifically required to disclose a pending action against them by their condo association for unpaid assessments, or the fact that they are delinquent in paying their assessments.

A 2009 amendment to subsection (h)(3) of 735 ILCS 5/15-1701, a part of the Illinois Foreclosure Law, effective July 23, 2009, requires that a rent-paying tenant be given a proper written notice which then triggers that tenant's right to stay in the property and pay rent another 120 days (about four months) before being forced to move out. It says in part that:
  • (4) In a case of foreclosure where the occupant is current on his or her rent, or where timely written notice of to whom and where the rent is to be paid has not been provided to the occupant , or where the occupant has made good-faith efforts to make rental payments in order to keep current, any order of possession must allow the occupant to retain possession of the property covered in his or her rental agreement (i) for 120 days following the notice of the hearing on the supplemental petition that has been properly served upon the occupant , or (ii) through the duration of his or her lease, whichever is shorter, provided that if the duration of his or her lease is less than 30 days from the date of the order, the order shall allow the occupant to retain possession for 30 days from the date of the order. A mortgagee in possession, receiver, holder of a certificate of sale or deed, or purchaser at the judicial sale, who asserts that the occupant is not current in rent, shall file an affidavit to that effect in the supplemental petition proceeding. If the occupant has been given timely written notice of to whom and where the rent is to be paid, this item (4) shall only apply if the occupant continues to pay his or her rent in full during the 120-day period or has made good-faith efforts to pay the rent in full during that period. No mortgagee-in-possession, receiver or holder of a certificate of sale or deed, or purchaser who fails to file a supplemental petition under this subsection during the pendency of a mortgage foreclosure shall file a forcible entry and detainer action against an occupant of the mortgaged real estate until 90 days after a notice of intent to file such action has been properly served upon the occupant.
However, just like RLTO 5-12-095, this rule does not apply to actions for possession by the condominium association. Only foreclosures.

Sure, the law says the landlord owes you your security deposit back and probably damages for breaching their lease with you if you get kicked out because of a foreclosure. But this is a landlord who has not paid some serious bills for a long time. How likely do you think it is that you will collect against this landlord who has not paid their mortgage or assessments, even if you win in court? You are best off relying on your own investigation before entering into a lease, not the disclosures a landlord is required to make under the law. Real life and protecting yourself should trump dependence on your rights in this situation.

So before the apartment finding service gets you sign off on that lease, please check if your landlord might have a foreclosure or eviction filed against them in Cook County.
You can go to Cook County Case Search and (1) select "Chancery Division" then go down leaving selections about case number and date filed blank, then (2) type in your landlord's last name or its company name and select "Defendant" then (3) hit "Search Now".

You can use the same site and method to see if the landlord is being sued by the condo association by changing the kind of search from "Chancery Division" to "Civil Division."

Saturday, July 23, 2011

"Owner Occupied Building" under RLTO 5-12-020(a)

What is an owner occupied building with six or more units under Section 5-12-020(a) of the Chicago Residential Landlord & Tenant Ordinance ("RLTO")

The RLTO does not apply to a rental in a building if the owner of the property lives in the building AND the building has only six units, or fewer. ("Rental of the following dwelling units shall not be governed by this chapter... Dwelling units in owner occupied buildings containing six units or less"). RLTO 5-12-020(a).

Whether or not units are actually occupied by renters does not matter, just that the building contains the right number of apartments. See Meyer v. Cohen, 260 Ill. App. 3d 351, 358 (1st Dist. 1993).

Even though a separate coach house doesn't have its owner living in it, if the owner lives in the main house, then that coach house will be considered "owner occupied". The tenants renting in the coach house will not be protected by the RLTO if it does not have at least seven (7) units. See Berven v. Marquette Nat'l Bank & Trust No. 14662, 394 Ill. App. 3d 22 (1st Dist. 2009).

We wonder, what if the whole property has more than seven (7) units including the main house and also the coach house together? In the Berven case there were not seven units even combining both the coach house and the main house.

If there are five (5) or more units on the whole property, even in different buildings, tenants renting at both buildings should be covered by the Illinois Security Deposit Return Act even if an owner lives there. See Hoffman v. Altamore, 352 Ill. App. 3d 246, 256 (2d Dist. 2004) ("'residential real property' for purposes of section 1 of the Security Deposit Return Act is limited to buildings on the same parcel of real property"). No law says the Illinois Return Act doesn't apply in Chicago too.

The RLTO in Chicago will usually apply to a rental of a single family home, because the owner of the house doesn't live there. Only the tenant lives there. This is also true for a condominium that is rented out by its owner at a large building. Even if the landlord only owns that single unit in the building, they are covered by the RLTO because the building is not six or fewer units, despite being owner occupied. See VG Marina Mgmt. Corp. v. Wiener, 378 Ill. App. 3d 887 (2d Dist. 2008).

The question of who is an "owner" is answered by Section 030, which defines "owner" as anyone with a beneficial interest in the property and right to present enjoyment. In other words, even if a trust holds the title to the property, its beneficiaries are "owners" even though their name appears nowhere on the deed. Also, there can often be multiple owners, and non-human owners like LLC or corporation owners. In other words, the person or company you pay rent to is not necessarily the only owner, or even an owner. In Detrana v. Such, 368 Ill. App. 3d 861, 869 (1st Dist. 2006), it was held that a partial owner who lived in a basement but didn't get any income from the property, or manage the property, was still an owner. So the RLTO didn't apply to the building.

Town houses in a row that share the same roof are considered separate buildings under the RLTO. Allen v. Lin, 356 Ill. App. 3d 405, 413 (1st Dist. 2005). So if there is a row of five town-homes and your landlord lives in one, and you rent the one next-door, you may still be protected by the RLTO. On the other hand, if you rent a unit in a duplex, and the owner lives in the other unit, you are not protected by the RLTO. But if the building has seven or more units and the landlord lives in the same building, you are still protected.

The much thornier issue is what it means for an owner to "occupy" a building. We represented a tenant in a case before the trial court and the court of appeals where this was the problem. Reversing the trial court, the court of appeals held that a landlord did not occupy the building where our client rented, and called it the "case of the missing landlord." The court of appeals explained:

"we find that in order to 'occupy' a building, there must at least exist a degree of 'living,' as set forth in Berven, sufficient to effectuate the aforementioned purposes of the owner-occupied exception. * * * An absentee landlord could keep a unit in numerous properties and claim to be occupying all of them if he occasionally visited the location and had mail sent there. The only possible evidence of occupation relates to the information on [Landlord's] driver's license and her testimony that she voted in Cook County. The remainder of her testimony and arguments on appeal amount to nothing more than a cynical attempt to prevent her tenant from obtaining the beneficial effects of the ordinance. Furthermore, there is plenty of evidence that clearly shows that [Landlord] was living in Joliet during the relevant times at issue and spent the vast majority of her time there. [Landlord], for all intents and purposes, was an absentee owner under these circumstances as she would be unaware and inaccessible should any tenant-related issues arise, which is contrary to the purposes of the owner-occupied exception carved out by city council."

This isn't precedent, but it should come as no surprise that the owner cannot live in a house in Joliet but say their Chicago apartment building is "owner occupied."