What Should a Landlord do if a Tenant’s First Security Deposit & Rent Check Bounces?

In most cases, trouble with tenants usually begins some time after the tenant has paid the first month’s rent and a security deposit.  There are times, however, when a tenant “breaks bad” right off the bat and bounces the initial check or checks given to the landlord.

Before getting too deep into the topic, lets examine the state of the law in Chicago.  Chicago landlords governed by the Chicago Residential Landlord Tenant Ordinance (CRLTO) should be reminded of the strict rules of 5-12-080(a) regarding a security deposit.  Prior to the August, 2010 amendments to the CRLTO, a landlord could not accept a check containing both the security deposit and rent.  To do so would have been a commingling violation and the landlord would be on the hook to return the deposit and to pay the tenant a penalty in the amount of two times the deposit plus court costs and attorney’s fees.  Section 5-12-080(a)(2) was added to the law and provides that a landlord who accepts security deposit and rent in the same check must transfer the security deposit into an acceptable security deposit account within five business days after the payment is accepted.

In practical terms, however, even after the amendment, I think it is foolish of a landlord to accept first month’s rent and the deposit in a single check.  First, why even give the tenant an argument for commingling that must be rebutted?  Second, why risk that the check will not clear or the landlord will be too busy to move the deposit into a proper account within five business days after acceptance.  Doing it right, from the start, with one check for a deposit and one check for first month’s rent is clean, simple, and cuts down on problems later on.

So, what happens when that security deposit check bounces?  Can a landlord just change the locks or throw the tenant out?  Nope, unless the tenant will vacate voluntarily, the landlord has to go through the eviction process.  (This is doubly true when a landlord lets a tenant move in and does not actually take rent or a deposit from the tenant before the tenant gets the keys – believe me, it happens)

So, what notice does the landlord have to give the tenant?  It depends on which check or checks bounced.  For a bounced security deposit check, assuming the lease does not lengthen the time limit, the landlord must serve a ten day notice for breach of a lease term.  A five day notice is not proper.  Why?  A security deposit is not rent.  A five day notice, again, provided the lease is not modified, is appropriate when a rent check bounces.  When the deposit and rent are in the same check, the landlord can serve a five day notice for the rent amount only or a ten day notice for the deposit amount and could probably legally add the rent due to the five day notice also.

Keep in mind, a ten day notice for a tenancy, rental agreement, or lease governed by the CRLTO must have a right to cure, similar to a five day notice.  That is, if the tenant pays within ten days, the tenant can continue to reside in the rental property.

In all instances, fast action to prepare and serve a proper notice of termination of tenancy should be part of a landlord’s regular practice.  The longer a landlord waits to serve an eviction notice, the longer the entire time of tenant default will be before the landlord can remove the tenant, through an eviction if necessary.

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