Understanding the landlord-tenant law is an important piece to being a successful landlord, and under this is the security deposit law. Most landlords in Illinois require a tenant to pay a security deposit. And understandably so, the deposit helps provide a financial cushion in case of certain liabilities, such as:

• Failure by the tenant to pay due rent or clear utility bills at the time of moving out. 
• Failure to make repairs and fix damage exceeding normal wear and tear before moving out. 
• Causing lease violations that have a financial impact on the landlord, such as breaking the lease early. 

In such cases, security deposits can help you minimize the financial impact on your bottom line, albeit to a certain extent. 

Equally, as a landlord, you have certain responsibilities as per Illinois deposit laws. The following is a basic overview of everything you should know about Illinois security deposit laws. 

Be sure to include these clauses in your rental agreement to avoid security deposit disputes. As an Illinois landlord, you should understand every law under the landlord tenant law. 

(Please note that some local governments in Illinois may have different security deposit rules. Including, Chicago, Oak Park, Evanson, Urbana, DeKalb, Mount Prospect, and  Suburban Cook County). 

Is there a limit to how much security deposit a landlord can ask in Illinois? 

Some states require landlords to abide by a certain limit for security deposits. The state of Illinois doesn’t require landlords to abide by any limit for a tenant deposit. Illinois security deposit laws state a landlord can collect as much of a security deposit as they want from a tenant. Most landlords set the security deposit equal to the monthly rent paid. 

Do landlords in Illinois have to store their tenants’ deposits in an interest-bearing account?

Yes! Security Deposit Interest Act states how you store the security deposit depends on the number of rental units that you own. If you own less than 25 units, then you are free from following any storage rules under the security deposit law. 

But a landlord who owns at least 25 units must store their tenants’ deposits in an interest-bearing account under two circumstances. One, if all of the 25 units are located in a single building or complex; and two, if you keep the deposit for at least 6 months. 

Although rates may be calculated differently for different cities, the current interest rate in both Chicago and Illinois is 0.01%. The interest begins accruing on the deposit the day you receive it from the tenant. 

Landlords can pay interest on the security deposit either by crediting it towards a rent payment or can be paid directly to the tenant. You must do this within 30 days of a 12-month rental period. 

If a landlord fails to abide by these security deposit storage rules, they may be liable to certain repercussions. Including, having to reimburse the tenant the entire security deposit amount, plus reasonable court and attorney fees. 

What can a landlord deduct on a resident's security deposit in Illinois?

As a landlord in Illinois, you may be able to deduct the following costs from a residents security deposit. 

• Unpaid rent. 
• Unpaid utilities.
• Cost incurred due to a lease violation.
• Charges outlined in the lease.
• Cost of damages exceed normal wear and tear.

There is no law on how many deductions a landlord can make on a tenant’s security deposit. The only exception is that the money deducted from the tenants' security deposit must be reasonable and the tenants given a receipt. If the deposit isn’t able to cover your costs or unpaid rent, you may be able to seek additional damages through other means, including court action.

Costs taken off the security deposit should be reflected on an itemized statement. Landlords can issue the receipt for deductions from security deposits at the end of the tenancy. 

What does Illinois consider to be normal wear & tear vs. damage?

The state of Illinois considers normal wear and tear as damage that results in a normal way. Examples include loose door handles, faded paint and flooring, gently worn carpets, stained bath fixtures, and lightly scratched glass. 

Damage, on the other hand, refers to the destruction that occurs in a unit due to abuse or negligence. Examples include missing fixtures, broken tiles or windows, torn carpets, and missing fixtures. 

A landlord can hold tenants liable and give an invoice for estimated or actual cost for any damages exceeding normal wear and tear.

Can a landlord use a security deposit as last month’s rent in Illinois? 

Illinois security deposit laws don’t explicitly forbid a tenant from doing so. However, if you’d like to forbid your tenants from doing so, security deposit laws state you can include a provision in the lease prohibiting the use of the deposit as last month’s rent.

When must you return a resident's security deposit in Illinois? 

If a landlord owns at least 5 rental units, the Security Deposit Return Act states they have two options to consider when returning a tenant’s deposit. The first option is to return the deposit within 30 days of the lease ending, less allowable deductions. Landlords must notify the tenant about your intentions to keep a portion of the deposit. Landlords must deliver the notice either by personal delivery or by mail. 

The notice must include an itemized statement of deductions, as well as the approximate cost of repairs. 

Then, 30 days after notifying the tenant, you must provide them with copies of any receipts and invoices. 

The other option under the Security Deposit Return Act is for a landlord to return the deposit within 45 days of the tenant leaving if returning the deposit in full. Unlike in the first option, you don’t have to notify the tenant of your intentions to do so. 

Failure to follow these legal procedures of the Illinois security deposit law may have legal repercussions for the landlord. The landlord may have to pay the tenant up to double the deposit amount, plus any applicable court and attorney fees.

What must a landlord do after the sale of rental in Illinois?

Change of ownership will certainly have an impact on the tenant’s security deposit. The landlord must transfer the security deposit, plus any accrued interest, to the incoming landlord. The only exception to doing this is if the transfer is done to a party that has a lien on the premises. 

After you’ve done this, it’ll then become the incoming landlord’s responsibility to inform the tenant of the change of ownership. This they must do within 21 days of receiving the security deposit from the outgoing landlord.

Illinois security deposit law allows landlords to evict tenants for lease violations, such as failure to pay rent and for causing damage. You must, however, follow the state law when carrying out the process, lest it fails. 

If a landlord fails to follow such security deposit rules, you could find yourself paying reasonable attorney's fees and added court costs. 

From start to finish, the process may take several months to over a year for landlords and residents. 

Bottom Line

As a landlord, it’s important to familiarize yourself with all these rules if you require tenants to pay an Illinois security deposit. Failure to do so can have severe consequences not only for your bottom line but also for your professional reputation as a landlord. 

If you have a question or need expert help in managing your rental, Domain Property Management can help. We provide professional management solutions to Chicago investment owners. Get in touch to learn more!

Disclaimer: Please note that the information provided in this blog is intended for general guidance and should not be considered as a replacement for professional legal advice. It is important to be aware that laws pertaining to property management may change, rendering this information outdated by the time you read it.