Landlord and tenant obligations

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  • 1. 1 Part III. Landlord and Tenant Obligations Sterling Educational Services, April 30, 2014 11:10-12:00 Author: William A. Price, Attorney at Law www.growthlaw.com P.O. Box 1425 Warrenville, IL 60555 Tel/Fax 1-800-630-4780 Email: wprice@growthlaw.com
  • 2. 2 About the Author: Bill Price is an attorney in private practice in Warrenville, Illinois. He is the 2012 recipient of the ISBA Section of General Practice "Tradition of Excellence" award. He is the Secretary and Vice-Chairman of the Institute for Illinois Business Laws, in which capacity he chaired the subcommittees that wrote both versions of the state Limited Liability Companies Act. He served as the 2007-08 Chairman for the Corporation, Securities, and Business Law Section Council of the ISBA, and is a 2012-2103 member of that Section Council. Mr. Price is a 2012-2013 member of the Administrative Law Section Council, for which he is general editor for the 2007 edition of the ISBA Handbook of Illinois Administrative Law, and edits the Section newsletter. He has also chaired that Section Council. His private practice includes business and administrative litigation, international and national transactions, and nonprofit entity law. He was appointed by Governor Edgar and confirmed by the Illinois Senate as the state Small Business Utility Advocate. He also has taught courses in private equity and venture capital project financing at the Stuart Graduate School of Business, Illinois Institute of Technology. Books by Mr. Price include Limited Liability Organizations (Specialty Technical Publications, Vancouver, BC), which covers all forms of business entity in the 50 states and many foreign countries and Illinois Law Office Practice Forms (Michie Co., 1995), which provides a forms set for use in business, real estate, and family estate matters for Illinois law offices. He is a 1978 graduate of Duke University School of Law, and holds a Masters in Public Policy Sciences from Duke issued that year, as well. He is a 1974 graduate (Magna Cum Laude) of the University of Illinois, Urbana-Champaign.
  • 3. 3 Topics Addressed In This Presentation A. Landlord 1. Duty to deliver possession, to repair, to provide “quiet enjoyment” 2. Security deposits: collecting, retaining, and returning 3. Fair Credit Reporting Act 4. Protecting Tenants at Foreclosure Act 5. Abandoned property B. Tenant: duty to occupy, abandonment, holdover tenant, pay rent
  • 4. 4 A. Landlord 1. Duty to deliver possession, to repair, to provide “quiet enjoyment” A.1.a. Sources of the law of landlord and tenant: mostly common law and contractual (lease terms): some statutory additions. A good general summary of landlord and tenant law, including eviction rights and general comments on leases, is available at: http://www.illinoislegaladvocate.org/index.cfm?fuseaction=home.dsp_content&co ntentID=5397 A.1.a.1. Illinois landlord and tenant statutes (except for security deposits, which are summarized in a separate section below) include: Landlord and Tenant Act, 765 ILCS 705 Section 1: Voids provisions in residential leases that exclude landlord liability for negligence and bad maintenance Section 3: Lessor of 100 or more units must accept payments at business office on premises during regular hours without penalty Section 5: Lessor may void lease if probable cause hearing finds lessee or occupant may be guilty of Class X felony Section 15: Lessor must change lock or rekey same before new tenant takes possession, or may be liable for thefts from unit Section 16: Military service members may cancel leases if called into service or if they have a permanent change of station Tenant Utility Payments Disclosure Act, 765 ILCS 740 Section 5: Landlords must disclose formula for allocation of master metered utilities to tenant before rents unit, must not exceed amount charged by public utility, must provide copies of public utility bill and accounting for payments made to utility on demand Residential Tenants Right To Repair Act, 765 ILCS 742 Section 5: Tenant can make required repairs up to $500 and can withhold from rent after notice to landlord if landlord fails to repair within 14 days or if emergency,
  • 5. 5 unless tenant caused need for repair Section 10: Limits Act to certain for-profit owner residential tenancies Section 15: Tenant responsible for quality of work done, licensing of contractor, and contractor to be insured Section 20: Withholding under Act no defense to eviction unless tenant complies with Act Section 25: Repairs do not provide work providers rights against property under mechanics lien act Section 30: Home rule units of government may not reduce tenant rights under Act Retaliatory Eviction Act, 765 ILCS 720 Leases and landlord actions refusing lease renewal which retaliate for legitimate complaints to governmental authorities are void and prohibited Property Taxes of Alien Landlords Act, 765 ILCS 725 Lease provisions on crop production leases from alien landlords requiring farming tenants to pay property taxes are void, and amounts received by alien landlords and their agents for same must be returned. Rent Concession Act, 765 ILCS 730 Nonfarm leases must state rent concessions made (apart from build-outs) and must not be shown as security for loans unless the lease text contains the required captions and disclosures. Rental Property Utility Service Act, 765 ILCS 735 Section 1: Landlord responsible for water, gas, electric payments if agrees to make same in lease, and tenant may cancel lease or make payment arrangements with utility if landlord does not do so Section 1.2: Notice required along with rent reductions if common area utilities to be paid by tenant Section 1.3: Tenant recovery by suit or counterclaim possible, with treble damages and attorney’s fees and costs possible if utility amount tenant had to pay over $3,000 Section 1.4: Prohibits landlords from causing tenant utility service to cease by nonpayment, if landlord has expressly or by implication agreed to pay Section 2: Tenants or utilities may petition for receiver of rents if notified
  • 6. 6 utilities to be cut off Section 2.1: Allows tenant abatement of rent for Section 1.4 violation, and statutory damages for intentional violations Section 2.2: Costs, attorney fees, and damages recoverable by utility or tenants bringing receivership action Section 3: Utility notices to tenants of proposed service termination and their rights to pay themselves to avoid cutoff, etc... Section 4: Landlord may not increase rents to cover amounts lawfully deducted for utility service under this Act. Section 5: Utility other rights to act to protect public safety and to pursue other remedies against landlord not restricted by Act A.1.a.2. City and village codes may also contain substantial revisions to the law of landlord and tenant, including additional tenant rights, landlord maintenance obligations, and other provisions, some in tenant ordinances, some in building and zoning ordinances, some in administrative enforcement process rules and regulations A.1.a.3. Caselaw and Common Law: (Selected topics: most landlord/tenant lease terms and other issues are dealt with by other speakers in this seminar.) A.1.a.3.1. Warranty of Habitability A warranty of habitability is implied in every residential lease. Jack Spring v. Little, 50 Ill.2d 351, 280 N.E. 2d 208 (1972); Glasoe v. Trinkle, 107 Ill.2d 1, 479 N.E.2d 915, 88 Ill Dec. 895 (1985); and 112 other cases, including recent authority Spanish Court Two Condo. Ass'n v. Carlson, 2012 IL App (2d) 110473 (Ill. App., 2012). Tenants may enforce this warranty in affirmative law suits, or in defense to eviction actions based on their non-payment of rent. A.1.a.3.2. Covenant of Quiet Enjoyment Every tenant is entitled to the covenant of quiet enjoyment. A covenant of quiet enjoyment is implied in all leases and is breached when there is actual or constructive eviction of the lessee by the lessor of the property. See Blue Cross Ass'n v. 666 North Lake Shore Drive Associates, 100 Ill. App. 3d 647, 651-52, 427 N.E.2d 270, 272-73 (1981), same holding Brown v. Lober (1979), 75 Ill.2d 547, 553, 27 Ill.Dec. 780, 389 N.E.2d 1188. A.1.a.3.2. Landlord Liability For Thefts From Tenant Premises
  • 7. 7 Landlords are ordinarily not liable for thefts from tenant premises (which is why it is a good idea for tenants to get their own theft and other casualty insurance). If a landlord takes on a duty by, for instance, entering tenant premises and leaving same unlocked, landlord may become liable for tenant lossses from theft. See Mims v. New York Life Ins. Co., 273 N.E.2d 186, 133 Ill.App.2d 283 (Ill. App. 1 Dist., 1971). A.1.a.3.2. Landlords May Or May Not Be Liable For Criminal Acts of Third Parties That Damage Tenants The general rule is that landlords are not liable for injuries to tenants inflicted by third parties, Rowe v. State Bank (1988), 125 Ill.2d 203, 126 Ill.Dec. 519, 531 N.E.2d 1358. In that case, however, the court held the landlord had been on notice that master and grandmaster keys were missing, and criminal assault on tenants and invitees was reasonably forseeable, so the case was remanded for possible allocation of damages to the landlord and the management company. Cases holding no duty existed: A complaint for physical injuries inflicted by third parties as a result of landlord’s alleged failure to install proper locks was dismissed in Beck v. Rossi Bros., 466 N.E.2d 1124, 125 Ill.App.3d 874, 81 Ill.Dec. 322 (Ill. App. 1 Dist., 1984), which noted prior caselaw on broken burglar alarms had held only contractual damages for contractual duties to maintain certain items the landlord had agreed to have were appropriate for burglary losses. Another case was dismissed when no proximate causation of criminal loss or forseeability was shown, though a lock was broken and the landlord had promised to repair same, N.W. v. Amalgamated Trust and Sav. Bank, Trust No. 4015, 554 N.E.2d 629, 196 Ill.App.3d 1066, 143 Ill.Dec. 694 (Ill. App. 1 Dist., 1990). Prior crimes in a neighborhood, not involving the same building and same building condition, were not enough to impose a duty to secure the building against criminal intruders and to impose liability for their actions on landlord, Petrauskas v. Wexenthaller Realty Management, Inc., 542 N.E.2d 902, 186 Ill.App.3d 820 (Ill. App. 1 Dist., 1989). Even when a landlord was on notice of prior attacks in a parking lot, the landlord did not have a duty to protect invitees attacked in the lot by such third party trespassers, Whalen v. Lang, 389 N.E.2d 10, 71 Ill.App.3d 83, 27 Ill.Dec. 324 (Ill.App. 3 Dist., 1979). Special relationships, such as common carrier-passenger, business invitor-invitee and innkeeper-guest may create a duty to protect against third party actions, but landlord-tenant does not, Martin v. Usher, 55 Ill.App.3d 409, 371 N.E.2d 69, 13
  • 8. 8 Ill.Dec. 374 (Ill. App. 1 Dist., 1977). Cases holding liability could be possible: A limited duty to protect tenants from third party criminal act losses was held to exist in Shea v. Preservation Chicago, 565 N.E.2d 2, 206 Ill.App.3d 657, 151 Ill.Dec. 749 (Ill. App. 1 Dist. 1990 (landlord had promised to repair inner security door and lock, and did not do so.) Prior crimes in a CHA building imposed a duty to secure tenants in same against further criminal actions by repair of the physical condition that had been the proximate causation of the prior crimes, and liability to CHA when it failed to do so, Duncavage v. Allen (1986), 147 Ill.App.3d 88, 100 Ill.Dec. 455, 497 N.E.2d 433. A landlord may be held liable for the criminal acts of third parties when it "voluntarily undertakes to provide security measures, but performs the undertaking negligently, if the negligence is the proximate cause of injury to the plaintiff." (Phillips v. Chicago Housing Authority (1982), 89 Ill.2d 122, 126, 59 Ill.Dec. 281, 431 N.E.2d 1038; Cross v. Wells Fargo Alarm Services (1980), 82 Ill.2d 313, 317, 45 Ill.Dec. 121, 412 N.E.2d 472; Pippin v. Chicago Housing Authority (1979), 78 Ill.2d 204, 209, 35 Ill.Dec. 530, 399 N.E.2d 596.) This rule is simply an application of the established principle, recognized in section 324 of the Restatement (Second) of Torts (1965), that one who has voluntarily undertaken to provide a service must do so with reasonable care. 2. Security deposits: collecting, retaining, and returning A.2.a. State statutes Security Deposit Return Act, 765 ILCS 710 Section 1: For landlords with 5 or more units, requires return of security deposit within 45 days without deduction unless proof of actual or reasonable costs of repair provided to former Section 1.1: Transferor and transferees of sold properties jointly liable for return to tenant of security deposit plus statutory interest Section 1.2: Holder or purchaser of property who has received tenant security deposits liable for same, not landlord, and holder or purchaser can post notice they have the deposits Security Deposit Interest Act, 765 ILCS 715
  • 9. 9 Section 1: Landlords with more than 25 units on site must pay interest at largest commercial bank in state rate on security deposits received Section 2: Interest to be paid to non-defaulting tenants within 30 days of end of each 12 month rental period Section 3: Does not apply to public housing 3. Fair Credit Reporting Act 4. Protecting Tenants at Foreclosure Act 5. Abandoned property A.2.b. Local Ordinances A.2.b.1. Chicago Residential Landlord and Tenant Ordinance, Municipal Code of Chicago, Section 5-12-080 The Chicago Residential Landlord and Tenant Ordinance (CRLTO) also provides a tenant with protections as to the holding and return of a security deposit. 3. Fair Credit Reporting Act This law is 15 USC § 1681 et seq. The Federal Trade Commission administers the Act, and a copy of same is available at: http://www.ftc.gov/sites/default/files/fcra.pdf Tenants must be told if action is taken against them as a result of a bad credit report. They have a right to access and contest the contents of such credit files. They can ask for their credit scores. Landlords are among those who have a right to access such credit files. Identity theft victims and active military personnel have additional rights. 4. Protecting Tenants at Foreclosure Act The Protecting Tenants at Foreclosure Act protects tenants from eviction because of foreclosure on the properties they occupy. These provisions took effect on May 20, 2009, and originally were scheduled to expire on December 31, 2012. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act
  • 10. 10 (Dodd-Frank Act) changed the expiration date to December 31, 2014. The tenant protection provisions apply in the case of any foreclosure on a “federally related mortgage loan” or on any dwelling or residential real property. They provide that “any immediate successor in interest” in such a foreclosed property, including a bank that takes title to a house upon foreclosure, will assume the interest subject to the rights of any bona fide tenant and will need to comply with certain notice requirements. Under this law, the immediate successor in interest of a dwelling or residential real property must provide tenants with a notice to vacate at least 90 days before the effective date of such notice. An Office of the Comptroller of the Currency manual on the statute is available at: http://www.occ.gov/publications/publications-by-type/comptrollers- handbook/ptfa.pdf 5. Abandonment of property A.5.a. Caselaw Landlords have a duty to mitigate damages caused by tenant breaches of leases. This means that if a tenant has provided a suitable sublessee, the landlord may not be able to claim all damages and lost rents caused by tenants who vacate the premises. Chicago Title and Trust Co. v. Hedges Mfg. Co., Inc., 414 N.E.2d 232, 91 Ill.App.3d 173, 46 Ill.Dec. 510 (Ill.App. 2 Dist., 1980) A.5.b. Local Ordinances My cousin John Walker and his wife moved to the suburbs after the apartments they rented in Chicago were damaged by fires set by other tenants who left, and also didn’t pay the last month or two of rent, since they figured the landlord would never release any security deposits. This local “custom” may be why the Chicago ordinance is specific on the question of abandonment of premises. A.5.b.1. City of Chicago Residential Landlord and Tenant Ordinance Municipal Code Title 5, Chapter 12
  • 11. 11 5-12-130 Landlord Remedies (e)Abandonment. Abandonment of the dwelling unit shall be deemed to have occurred when: (1)Actual notice has been provided to the landlord by the tenant indicating the tenant’s intention not to return to the dwelling unit; or (2)All persons entitled under a rental agreement to occupy the dwelling unit have been absent from the unit for a period of 21 days or for one rental period when the rental agreement is for less than a month, and such persons have removed their personal property from the premises, and rent for that period is unpaid; or (3)All persons entitled under a rental agreement to occupy the dwelling unit have been absent from the unit for a period of 32 days, and rent for that period is unpaid. Notwithstanding the above, abandonment of the dwelling unit shall not be deemed to have occurred if any person entitled to occupancy has provided the landlord a written notice indicating that he still intends to occupy the unit and makes full payment of all amounts due to the landlord. If the tenant abandons the dwelling unit, the landlord shall make a good faith effort to re-rent it at a fair rental, which shall be the rent charged for comparable dwelling units in the premises or in the same neighborhood. If the landlord succeeds in re- renting the dwelling unit at a: air rental, the tenant shall be liable for the amount by which the rent due from the date of abandonment to the termination of the initial rental agreement exceeds the fair rental subsequently received by the landlord from the date of abandonment to the termination of the initial rental agreement. If the landlord makes a good faith effort to re-rent the dwelling unit at a fair rental and is unsuccessful, the tenant shall be liable for the rent due for the period of the rental agreement. The tenant shall also be liable for the reasonable advertising expenses and reasonable redecoration costs incurred by the landlord pursuant to this subsection. (f)Disposition of Abandoned Property. If the tenant abandons the dwelling unit as described in subsection (e) hereof, or fails to remove his personal property from the premises after termination of a rental agreement, the landlord shall leave the property in the dwelling unit or remove and store all abandoned property from the dwelling unit and may dispose of the property after seven days. Notwithstanding
  • 12. 12 the foregoing, if the landlord reasonably believes such abandoned property to be valueless or of such little value that the cost of storage would exceed the amount that would be realized from sale, or if such property is subject to spoilage, the landlord may immediately dispose of such property. B. Tenant: duty to occupy, abandonment, holdover tenant, pay rent B.1. Tenant duty to occupy Residential leases commonly include requirements that tenants occupy the premises as their primary residence, and for no other purpose. Landlords can re-enter premises abandoned by tenants and can collect rents for same. Gerardi v. Vaal, 523 N.E.2d 1327, 169 Ill.App.3d 818 (Ill.App. 3 Dist., 1988) B.2. Abandonment This is dealt with in the landlord duties and local ordinances provisions, above, as well. Tenant’s obligations to pay rent do not cease if they abandon the property. A tenant who abandons the property is liable for all rent due until another tenant is found. Wanderer v. Plainfield Carton Corp., 351 N.E.2d 630, 40 Ill.App.3d 552 (Ill.App. 3 Dist., 1958) B.3. Holdover Tenants B.3.a. In General Where no lease term is specified in an oral or written lease, courts imply renewable lease terms for the periods for which rental payments are paid, e.g., a month to month tenancy where rent is paid every month, a week to week tenancy where rent is paid every week. Many form leases provide for renewal of the tenancy on a periodic basis (e.g. month to month) after the expiration of the first lease term. B.3.b. Willful Hold Over 735 ILCS 5 / 9-202
  • 13. 13 A tenant who willfully stays after expiration of the lease term is obligated to pay double the value of the unit. The landlord must demand in writing possession of the premises before claiming double rent. B.3.c. Hold Over After Notice 735 ILCS 5 / 9-203 A tenant who gives notice of intent to vacate the unit and who stays beyond the date mentioned is obligated to pay double the value of the unit. B.4 Obligation To Pay Rent B.4.a. Rents Due The amount of rent due depends on the agreement (lease) between the landlord and the tenant. A demand for rent due and interest can be combined with a complaint for forcible entry and detainer (the statutory eviction process), but requires proper service of statutory notices for validity. American Management Consultant v. Carter, 915 N.E.2d 411, 333 Ill.Dec. 605, 392 Ill. App.3d 39 (Ill. App., 2009) The landlord has the option of suing for rent due as it becomes due, or suing for the whole amount plus lease penalties once the term of the lease is over, Miner v. Fashion Enterprises, Inc., 794 N.E.2d 902, 342 Ill. App.3d 405, 276 Ill.Dec. 652 (Ill. App., 2003). B.4.b. Penalty Clauses Lease provisions that permit penalties may be unenforceable. Examples may be late charges unrelated to the landlord’s actual cost of seeking the rent due. Builder’s Concrete Co. v. Fred Fauber and Sons, 58 Ill. App.3d 100, 373 N.E.2d 863, 15 Ill.Dec. 517 (3d Dist. 1978). Excessive late fees are prohibited by Chicago Residential Landlord and Tenant Ordinance 5-12-140(h) (limiting a late fee to $10 for the first $500 of rent and 5% of any amount over $500). If a landlord attempts to enforce an excessive late fee, the tenant is entitled to two months rent.