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Illinois: Major Changes to Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance

Posted By USFN, Monday, June 08, 2015
Updated: Friday, September 25, 2015

June 8, 2015

 

by Lee Perres and Jill Rein
Pierce & Associates, P.C. – USFN Member (Illinois)

On April 15, 2015, the City Counsel of the City of Chicago passed amendments to Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance, also known as the “Keep Chicago Renting” Ordinance (the Ordinance). The published amendments are slightly different from the original proposed changes that were made available by the City. The amendments were published on May 6, 2015 and go into effect 90 days after publication. Accordingly, the changes to the Ordinance are effective on August 4, 2015.

The amendments, among other changes, amend various provisions of the original Ordinance, expand upon the definition of “qualified tenants,” as well as define “unlawful conversion” and “unlawful hazardous unit.” The amendments add a section clarifying when qualified tenants are to be provided with required notices under the Ordinance. The amendments also include new provisions to Section 5-14-050, which require relocation assistance to be paid to tenants in unlawful hazardous units or in instances where there has been an unlawful conversion. An analysis of the published amendments is below.

Overview of Changes

The definition of a “qualified tenant” has been expanded. See Section 5-14-020. The new amendment states that a qualified tenant can include a tenant who is a “child, spouse, or parent of the mortgagor” as long as the tenant did not reside in the same “dwelling unit with the mortgagor.” This change makes the Ordinance similar to current Illinois law. Previously, the distinction had not been made between a mortgagor who resides in the same dwelling unit with the mortgagor, and a mortgagor who resided in the same multi-unit building as the mortgagor. As such, where a foreclosure of a multi-unit building has occurred, and a tenant is the “child, spouse, or parent of the mortgagor,” the tenant could possibly be considered a “qualified tenant” if the other requirements of Section 5-14-020 are met.

The terms “unlawful conversion” and “unlawful hazardous unit” are defined. The new amendment states in Section 5-14-020 that “unlawful conversion means any dwelling unit that is an illegal or unlawful conversion, as that term is defined in Section 17-17-0240.5.” Section 17-17-0240.5 defines conversion, illegal or unlawful (units) as “[a]ny change to a building that results in the creation of one or more dwelling units that are illegal under the Zoning Ordinance either because they exceed the number of dwelling units permitted in the zoning district where the building is located, do not comply with the bulk and density standards of the zoning district where the building is located, or were created without a required special use.” See Section 17-17-0240.5.


The new amendment defines “unlawful hazardous unit” as “a dwelling unit that is hazardous based on life safety or sanitation conditions, as prescribed in rules promulgated by the commissioner.”

A provision has been added to the notice to tenants required under Section 5-14-040. The notice to tenants must contain the following statement: “You may go to the City of Chicago Department of Business Affairs and Consumer Protection’s website for additional information regarding your rights and obligations under the Ordinance or phone the City of Chicago’s 311 Service Center to file a complaint.” See Section 5-14-040(a)(1).

Further, these changes require that the notice to tenants, mandated under Section 5-14-040, must now contain the date that the notice was mailed. See Section 5-14-040(a)(1).

Also, a provision has been added to the Ordinance requiring the new owner to provide a Tenant Information Disclosure Form (Form) with the notice required under Section 5-14-040(a). See Section 5-14-040(b). As of the preparation of this article, the Form is not available from the City. The Ordinance provides that a tenant shall complete and return the Form to the person identified in the Form to receive it. It does not, however, require the tenant to comply and does not relieve the property owner of the requirement to extend the lease, offer a replacement unit, or pay the relocation assistance fee.

Further added are provisions to Section 5-14-050, stating what a new owner of a tenant-occupied property must do in order to advise a tenant of his or her rights under the Ordinance. The Ordinance mandates that after a foreclosure of an unlawful hazardous unit or unlawful conversion, a relocation fee is paid to a qualified tenant, or a replacement unit is offered and accepted by the tenant.

After a foreclosure, if it is discovered that a rental unit is a “unlawful hazardous unit or unlawful conversion,” and the tenant is a “qualified tenant” as used in the statute, the new owner “shall pay a one-time relocation assistance fee of $10,600 to the qualified tenant unless the owner offers, and the tenant accepts the owner’s offer” of a new rental agreement of a replacement unit with a rental rate that does not exceed 102 percent of the current rental rate. See Section 5-14-050.

Detailed Analysis of New Sections

Additional Language to Section 5-14-040
— The notice to tenants required under Section 5-14-040 of the Ordinance must contain the following statement: “You may go to the City of Chicago Department of Business Affairs and Consumer Protection’s website for additional information regarding your rights and obligations under the Ordinance or phone the City of Chicago’s 311 Service Center to file a complaint.” See Section 5-14-040(a)(1). The notice to tenants must now contain the date that the notice was mailed. See Section 5-14-040(a)(1).

The notice to tenants mandated under Section 5-14-040(b) provides that a Tenant Information Disclosure Form (Form) must be provided with the notice required under Section 5-14-040. [Section 5-14-040 requires that within 21 days of becoming the owner of a foreclosed rental property, a specific notice is to be sent to any tenant of a foreclosed rental property, advising the tenants that, under certain circumstances, they may be able to obtain relocation assistance.] Within 21 days of receipt of the Form, the tenant shall complete and return the Form to the Owner. [“Owner” is defined as “any person who alone, or jointly or severally with others is: (1) pursuant to a judicial sale of a foreclosed rental property, the purchaser of the foreclosed rental property after the sale has been confirmed by the court and any special right of redemption has expired; or (2) a mortgagee which has accepted a deed-in-lieu of foreclosure or consent foreclosure on a foreclosed rental property. ‘Owner’ includes the owner and his agent for the purpose of managing, controlling or collecting rents.” See Section 5-14-020 of the Ordinance.]

However, the failure of the tenant to return the Form does not relieve the Owner of either providing a new lease or replacement rental unit, or providing the relocation assistance fee. See Section 5-14-040(b). The City of Chicago advises that the Form is currently being drafted by the Department of Business Affairs and Consumer Protection.

Additional Language to Section 5-14-050
— Under the amendments to the Ordinance, Section 5-14-50(a)(2) has been expanded upon to extend coverage to “unlawful hazardous unit[s]” and units which are “unlawful conversion(s)”. Although not specifically used as examples, unlawful hazardous units and unlawful conversion rental units generally include basement and attic units that do not contain proper emergency exits. In the event a building is foreclosed that contains a unit that is an “unlawful hazardous unit or unlawful conversion”, then the owner: “shall pay a one-time relocation assistance fee of $10,600 to the qualified tenant unless the owner offers, and the tenant accepts the owner’s offer of, a rental agreement at a replacement rental unit with an annual rental rate that does not exceed 102 percent of the qualified tenant’s current annual rental rate; and for any 12 month period thereafter, does not exceed 102 percent of the immediate prior year’s annual rental rate. The replacement rental unit may be located either in the same foreclosed rental property or at another location (emphasis added).”

In Section 5-14-050(a)(2), the commissioner may prescribe by rule conditions under which an owner may offer a qualified tenant residing in an unlawful hazardous unit to extend or renew, at the tenant’s option, the tenant’s current rental agreement — with an annual rental rate that complies with Section 5-14-050(a)(1), if the owner makes all necessary repairs to correct any life safety or unsafe sanitary conditions.

As such, the amendment requires that the owner pay the $10,600 unless the qualified tenant accepts the owner’s offer of a new lease “with an annual rental rate that does not exceed 102 percent” of the qualified tenant’s current annual rental rate. See Section 5-14-050(a)(2). This provision stands out from other provisions within the Ordinance because the owner could offer the extended lease, and if the qualified tenant did not accept the lease, the one-time relocation assistance fee did not have to be paid. However, as Section 5-14-050(a)(2) is currently written, the qualified tenant could reject the offer for a replacement unit and the one-time relocation assistance fee of $10,600 would be required.

Within 21 days “after the date upon which the tenant returns or should have returned” the Form pursuant to Section 5-14-040, the owner shall provide notice to the qualified tenant that the owner is “paying the required relocation fee or offer to extend or renew the qualified tenant’s rental agreement, or provide a rental agreement for a replacement rental unit, whichever is applicable …” See Section 5-14-050(a)(3). If a qualified tenant “fails to accept the owner’s offer to extend or renew the tenant’s rental agreement, or to accept a rental agreement for a replacement unit, whichever is applicable, within 21 days of receipt of the offer [unless more time is provided by the commissioner of business affairs and consumer protection] … the owner shall not be liable to such tenant for the extension or renewal of the tenant’s rental agreement; provided that a qualified tenant’s refusal to accept the owner’s offer for a replacement rental unit or to extend or renew the tenant’s current rental agreement for an unlawful hazardous unit pursuant to [5-14-050(a)(2)] does not affect the tenant’s right to payment of relocation fee.” See Section 5-14-050(a)(3). [The definition of “qualified tenant” has been expanded by the amendments to the Ordinance to include “(1) a tenant in a foreclosed rental property on the date that a person becomes the owner of that property; and (2) has a bona fide rental agreement to occupy the rental unit as the tenant’s principal residence.” See Section 5-14-020. A bona fide lease is considered bona fide only if: “(i) the mortgagor or any child, spouse, or parent of the mortgagor residing in the same dwelling unit with the mortgagor, is not the tenant; the lease was a result of an arms-length transaction; and (iii) the lease requires the receipt of rent that is not substantially less than fair market rent for the property, or the rental unit’s rent is reduced or subsidized due to a government subsidy.] Although the term “replacement unit” is not defined within the Ordinance, it appears that the unit offered as a replacement must be a similar size, in a similar location, and contain similar amenities.

When Section 5-14-050(a)(3) of the Ordinance is read with Section 5-14-050(a)(2) (which provides that the relocation assistance fee of $10,600 to a qualified tenant is not required if the option to extend the tenant’s lease is not accepted), the addition of Section 5-14-050(a)(3) would limit the time frame of when the owner would have to make the necessary one-time payment of the $10,600 relocation fee. As such, under the amendment, if the Form is provided to the tenant, and no response is given within 21 days, the owner must still make an offer for lease renewal or a payment of the one-time relocation fee (within 21 days), and wait 21 days for a response. As such, within approximately 42 days (not accounting for time delays with mailing) of the tenant receiving the Form, the owner will know if a new lease will need to be offered, if a one-time payment must be provided, or if an eviction can occur.

However, there is a provision within Section 5-14-050(a)(3), which states that additional time can be provided to a qualified tenant, as “established by the commissioner of business affairs and consumer protection,” to “accept the owner’s offer to extend or renew the tenant’s rental agreement, or to accept a rental agreement for a replacement rental unit … within 42 days of the offer …” See Section 5-14-050(a)(3).

Editor's Note: The Tenant Information Disclosure Form (“Form”) required by the amendments to Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance (the “Ordinance”) and corresponding Rules are now available:
http://www.cityofchicago.org/content/dam/city/depts/bacp/Rules/keepchicagorentingrules20150729.pdf.
The Form can also be found on the
City's website. The amendments go into effect on August 4, 2015.

©Copyright 2015 USFN and Pierce & Associates, P.C. All rights reserved.
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