Keep Chicago Renting Ordinance Resurrected

In the recent case of Rivera v. The Bank of New York Melon, et al., 2021 IL App (1st) 192188, the Illinois Appellate Court First District held that the Illinois Rent Control Preemption Act (“Act”) (50 ILCS 825/1 et seq.) preempted the Keep Chicago Renting Ordinance (“Old KCRO”) (Chicago Municipal Code § 5-14-010 et seq.). The Act prohibited the regulation of the amount of rent charged for residential property in the state of Illinois but the Old KCRO, which is a City of Chicago ordinance, required an owner of a foreclosed property to offer qualified tenants either a $10,600 relocation fee or extend the tenant’s lease with an annual rental rate that does not exceed 102% of their current rental rate. Under ordinary circumstances, Illinois law permits foreclosure purchasers to evict tenants from the foreclosed property following a 90-day notice period. 735 ILCS 5/9-207.5(a).  

The plaintiff Carmen Rivera (“Rivera”), a tenant residing in a foreclosed property in Chicago, filed suit against the defendants Bank of New York Mellon and Bayview Loan Servicing, LLC (“defendants”) in the circuit court of Cook County, alleging that the defendants failed to comply with the Old KCRO after purchasing the foreclosed property at a judicial sale. Rivera alleged that the defendants failed to offer her either relocation assistance or an extension of her lease agreement, as required by the Old KCRO. The defendants filed a motion to dismiss Rivera’s complaint and argued that the Act preempted the Old KCRO because the Old KCRO was a form of rent control. The circuit court denied the defendants’ motion to dismiss.  Following trial, the circuit court entered judgment in favor of Rivera for $98,420 in attorney fees, $21,200 in statutory damages, and $801.75 in related costs.

‍The Appeal

On appeal, the appellate court reversed and vacated the circuit court’s judgment against the defendants. The dispositive issue on appeal was whether the Old KCRO was preempted by the Act. The appellate court found that the Act provides that a home rule unit “may not regulate or control the amount of rent charged” for leasing residential property. The Old KCRO incentivizes purchasers of foreclosed property to retain tenants by excusing purchasers from paying a $10,600 relocation fee if they extend the qualified tenant’s lease and raise rent by no more than 102% of the previous year’s rent. Chicago Municipal Code § 5-14-050(a)(1) (amended Apr. 15, 2015).

The appellate court stated, “It is evident that the KCRO clearly regulates and controls the amount of rent a landlord may charge for residential property—no more than 102% of a qualified tenants’ current annual rent. As such, it clearly runs afoul of the Act, which prohibits such control or regulation by “home rule” bodies such as the City [of Chicago].” The appellate court determined that rent control is an integral underpinning of the Old KCRO and that the invalid rent control portion of the ordinance was not severable from the remainder. Therefore, the appellate court held that the Old KCRO was wholly preempted by the Act, and that the circuit court erred in denying the defendants’ motion to dismiss the plaintiff’s complaint.

The Old KCRO had draconian and confusing notice requirements and was often a financial trap for the unwary mortgagee purchaser of foreclosed properties in the City of Chicago. This court decision which holds that the Old KCRO is preempted by the Act was welcome relief to mortgagee purchasers.  

‍The New KCRO

‍However, this relief was short-lived. On July 21, 2021, the City of Chicago repealed the Old KCRO and passed a New KCRO (Chicago Municipal Code § 5-14-010 et seq.). The New KCRO, which is effective upon passage and approval, requires that no later than 21 days after a person becomes the owner of a foreclosed rental property, the owner shall make a good faith effort to ascertain the identities and addresses of all occupants of the rental units in the foreclosed rental property and notify, in writing, all occupants of such rental units that, under certain circumstances, the occupants may be eligible for relocation assistance in the amount of $10,600 unless the owner negotiates in good faith for a new rental agreement, offers the tenant a new rental agreement, and the tenant accepts the offer, in writing, for a new rental agreement.

The requirement to “negotiate in good faith” replaced the previous requirement that the mortgagee offer rent at a rate of 102%. While the New KCRO does provide some guidance as to what constitutes “good faith”, this will likely serve as a new area of litigation, along with issues surrounding whether an occupant is a “qualified tenant”, and other mainstays from the Old KCRO.

In addition to the required notice no later than 21 days after a person becomes the owner of a foreclosed rental property, the owner shall post a written notice on the primary entrance of each foreclosed rental property which sets forth the disclosures in subsection (a) of the New KCRO. The New KCRO also states that “The owner shall attach to each notice required by subsection (a) a Tenant Information Disclosure Form, in a form prescribed by rule. No later than 21 days after the receipt of the notice, the occupant may complete and return the Tenant Information Disclosure Form to the person and address indicated on the Form. The failure of an occupant to return the Tenant Information Disclosure Form does not relieve the owner of any obligation to either: (i) extend or renew the tenant's rental agreement, or provide a rental agreement for a replacement rental unit, whichever is applicable; or (ii) pay the relocation assistance fee.”

The owner is required to comply with this section of the New KCRO until the foreclosed rental property is sold or otherwise transferred to a bona fide third-party purchaser or the process required under this section of providing relocation assistance or negotiating a new rental agreement is complete. Thus, the New KCRO requires that the owner of a foreclosed rental property shall pay a one-time relocation assistance fee of $10,600 to a qualified tenant unless the owner negotiates in good faith for a new rental agreement that lasts at least 12 months, offers such qualified tenant a new rental agreement according to these terms, and the qualified tenant accepts the owner's offer in writing.

Under the New KCRO the owner of foreclosed rental property is also required to register the property with the City of Chicago Commissioner of Housing (“Commissioner”) no later than 30 days after becoming the owner.  It also provides that, “Any owner who fails to register under this section shall further be deemed to consent to receive, by posting at the foreclosed rental property, any and all notices of Code violations and all process in an administrative proceeding brought to enforce Code provisions concerning the property.” If the foreclosed rental property is sold or otherwise transferred to a bona fide third-party purchaser, the owner shall, within 10 days of such sale or transfer, notify the Commissioner in writing in a form and manner prescribed by the Commissioner.

‍Failure to Comply

‍Failure to comply with these requirements again yields harsh results, as the New KCRO provides that “any person found guilty of violating this chapter, or any rule promulgated hereunder, shall be fined not less than $500.00 nor more than $1,000.00. Each failure to comply with this chapter with respect to each person shall be considered a separate offense. Each day that a violation exists shall constitute a separate and distinct offense.” It also states that “with regard to any violation of this chapter by a corporation, all officers and directors thereof who may be responsible for any violation of this chapter shall, except as otherwise specifically prohibited or negated by law, be liable as provided in Section 1-4-090(e) of this Code for all fines, costs, fees, and penalties imposed on a corporation pursuant to this chapter.  

The New KCRO also provides legal remedies to the tenant for an owner’s non-compliance: “In addition to any other fine or penalty provided and in addition to a relocation assistance fee, if an owner fails to comply with this section, the qualified tenant shall be awarded damages in an amount equal to two times the relocation assistance fee for each violation of this section. This subsection does not preclude the qualified tenant from recovering other damages to which the qualified tenant may be entitled under this chapter.”  A tenant may also bring a private cause of action in court seeking compliance with the New KCRO and the prevailing plaintiff shall be entitled to recover, in addition to any other remedy available, his damages and reasonable attorney's fees.

The New KCRO does not have the rent control provisions which ran afoul of the Act so the appellate court’s decision finding the Act preempted the Old KCRO will not be a defense to enforcement or lawsuits based on the new KCRO.  Accordingly, mortgagee owners of foreclosed rental properties will once again have to comply with the requirements of a Chicago ordinance, this time the New KCRO or risk significant monetary penalties for non-compliance.