Nonrefundable application fees

Many Chicago landlords use nonrefundable fees to avoid the application of the CRLTO security deposit rules.  Instead of taking a security deposit and holding it subject to the CRLTO rules, landlords take an administrative fee that is nonrefundable.

While I know of no published cases on the legality of this strategy, the practice is under attack from tenant’s rights organizations and some members of the Illinois legislature.  Many who disfavor the fees argue that landlords are charging unfair or inappropriate amounts for the fee or are taking fees and then not renting to the applicant when no unit was actually available.  Many landlords who employ the tactic might argue that the burden of compliance with 5-12-080 requires the landlord to “self insure” by taking no security deposit and merely charging a small nonrefundable fee.

House Bill 1607 which seeks to amend the Illinois Landlord and Tenant Act by requiring landlords to provide an itemized receipt for the fee and providing that the application fee cannot exceed the landlord’s actual out of pocket expenses.  Landlords who fail to comply would be liable for penalties to the tenant.

Personally, I doubt this bill will pass.  I think that landlords who engage in the practice of collecting application fees when a property is not available are engaging in an unethical practice.  However, I foresee many logistical problems with the law.  How will the landlord know, in advance, the cost of the screening services?  Also, shouldn’t a landlord be entitled to compensation for the time and effort spent compiling and checking on the tenant’s information?  In this day and age where there are so many tenants, and many people in the market with bad credit (as a result of foreclosures and short sales), landlords must do their due diligence.  Is it unfair to transfer some of that burden to the prospective tenant?

Landlords must be careful not to run afoul of current laws by calling the fee a cleaning fee or so

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