Section 5-12-080 of the Chicago Residential Landlord Tenant Ordinance sets forth the requirements a that Chicago landlords covered by the ordinance must follow. Among these are the requirement to provide a receipt for a deposit; to keep the deposit in a segregated account; to pay interest on the deposit; to return the deposit within a prescribed time period or to properly deduct from that deposit; and to properly transfer the deposit upon a change of ownership of the property.
Section 5-12-080(f) provides:
"If the landlord or landlord's agent fails to comply with any provision of Section 5-12-080 (a) - (e), the tenant shall be awarded damages in an amount equal to two times the security deposit plus interest at a rate determined in accordance with Section 5-12-081. This subsection does not preclude the tenant from recovering other damages to which he may be entitled under this chapter."
Thus, in addition to the regular damages a tenant can recover for a landlord's violation of the ordinance, a tenant can also recover a penalty of two times the deposit as a penalty. (As an aside, the ordinance also provides elsewhere that a prevailing tenant can recover attorney's fees and court costs from the landlord)
I have found that when a landlord violates the ordinance, he or she usually does it in a big way. That is, if the landlord fails to return a deposit, it is also likely that the landlord did not provide a receipt for the deposit, that the landlord probably commingled the deposit and that the landlord likely violated many of the other requirements of the CRLTO.
Accordingly, many tenant's attorneys will bring a multiple count complaint against a landlord for various violations of the CRLTO. Until recently, these attorneys would plead for (and sometimes get) a penalty for each and every violation of Section 080 of the ordinance.
In the middle of 2006, a case was decided by the Illinois Appellate Court, KRAWCZYK v LIVADITIS, that clarified the situation. In that case, the Court followed two prior appellate decisions and determined that "the payment of a security deposit is a singular event and the RLTO does not specify double damages for "each" violation of 5-12-080".
Thus, a landlord can only be penalized once for violating Section 080 of the ordinance, regardless of the number of counts against the landlord. Following the KRAWCZYK ruling, a landlord who commingles a security deposit, does not provide a receipt for a deposit and fails to pay interest on the deposit will only be charged with a single penalty of two times the deposit (in addition to any other legal damages).
I am not sure I agree with the court's reasoning in this case. Frankly, the application of a single penalty actually encourages a landlord to violate the ordinance. Because ordinance violations cannot be cured, the penalty has a chilling effect on landlords becoming compliant.
For example, a landlord who commingles (and thus, has violated the ordinance and now owes two times as a penalty if sued) has no incentive to later segregate the account (except to segregate it and hope the statute of limitations passes) and even less incentive to pay interest or follow any of the other requirements of Section 080 because no matter what the landlord does, the landlord is on the hook for a penalty capped at two times the deposit.
Regardless of my belief that the decision has a chilling effect on landlord compliance, I am amazed at the number of tenant's attorneys who try to bull landlords with multiple claim counts and wild assertions that they are due the penalty for each violation. I recently spoke with another attorney dealing with a four count complaint. The tenant's attorney offered the landlord's attorney to settle the case, based on a security deposit approximately $1000, for about $10,000 claiming that he was entitled to eight times the deposit if he prevailed on all of the counts. Either this tenant's attorney is not very smart or he is smart like a fox. Landlords need to be careful of traps like this one.
If the landlord's attorney merely stipulated to the violation, he likely would pay no more than $3000 plus some interest and some minimal attorneys fees. Some deal!
2 comments:
In Section 5-12-080 it states:
"(f) If the landlord or landlord's agent fails to comply with any provision of Section 5-12-080 (a) - (e), the tenant shall be awarded damages in an amount equal to two times the security deposit plus interest at a rate determined in accordance with Section 5-12-081 (Amended February 7, 1997) This subsection does not preclude the tenant from recovering other damages to which he may be entitled under this chapter. (Prior code §193.1-8; Added. Council Journal of Proceedings, September 8, 1986, page 33771)"
As a layperson, if a landlord fails to pay the interest on a security deposit after the "12 month rental agreement", and continues not paying the interest after 5 years of occupancy, it would seem the landlord is in multiple violations and is liable for penalty of 2 x the security deposit x 4 years.
Does the "KRAWCZYK v LIVADITIS" case also limit the repeated violations and penalty of the same violation?
If yes, I don't understand how the court could have interpreted the section as "multiple violations are a singular event."
Thanks,
Tony D.
The best word we currently have on the aftermath of the KRAWCZYK v LIVADITIS case is that you cannot stack multiple counts under section 080.
I agree that one could argue that such a result would not make sense, especially in a situation where there were multiple violations of the various sections of section 080. Less persuasive would be the argument of multiple penalties for multiple violations of the same section such as you suggest.
The goal of the penalty is to dissuade a landlord from failure to follow the act. In your suggestion, a landlord who fails to pay a depsoit over four years likely causes damage on a $1000 deposit to the tune of less than $100. The penalty of $2000 + attorneys fees and court costs is stiff in relation.
To impose a penalty of two times four times ($8000) would be way out of proportion for the harm that is done. Likely the LIVADITIS court is recognizing that fact and wants to prevent a bonanza for a tenant who wins a case with multiple violations of the same subsection.
However, it is harder to argue that a landlord who violates multiple subsections of section 080 (ie. failure to pay interest, commingling and failure to return a deposit in a timely fashion) should only have to pay one penalty. To limit the penalty to 2x results in a chilling effect on landlords doing what they should do to comply with the ordinance. For example, once a landlord commingles a security deposit, that landlord has no incentive to comply with the rest of section 080 and might as well wait for the tenant to go to court.
All I can think is that in most cases, the 2x penalty is so stiff that the court was having a hard time awarding it on multiple occasions.
A better solution would be an amendment to the CRLTO providing that a tenant could make a written request to a landlord for complaince and after the landlord fails to cure, the tenant could be entitled to multiple penalties. In such a situation, landlords without an understanding of the law could comply and avoid any penalty whatsoever. Those who choose to violate in the fact of a complaince notice would be deserving of the multiple penalties. Such a provision, strictly enforced, would lead to much more compliance with the CRLTO and less cases filling up the court system.
I suspect that someone will bring such a case on appeal and we will get clarity on the issue, but that could take quite a while.
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