Calculating security deposit interest payment on a one year lease per the CRLTO

calculating security deposit interestCalculating the interest due a tenant on a security deposit held by a landlord pursuant to a tenancy governed by the Chicago Residential Landlord Tenant Ordinance should be simple enough, right?  It should be, however, because of the “high stakes” involved in the case of an incorrect calculation, landlords need to make sure the calculation is done right.

So, without much further ado, here is an example of how to calculate the interest payable to a tenant with a security deposit on a one year lease subject to CRLTO section 5-12-080(c). 

First, the law.  Section 5-12-080(c) of the Chicago Residential Landlord Tenant Ordinance reads as follows:

(c)     A landlord who holds a security deposit or prepaid rent pursuant to this section for more than six months shall pay interest to the tenant accruing from the beginning date of the rental term specified in the rental agreement at the rate determined in accordance with Section 5-12-081 for the year in which the rental agreement was entered into.  The landlord shall, within 30 days after the end of each 12-month rental period, pay to the tenant any interest, by cash or credit to be applied to the rent due.

So, let’s take a written Chicago residential lease with a one year lease term beginning March 1, 2009 and ending February 28, 2010 and executed on March 1, 2009.  For purposes of this example, the landlord owns only one unit in the whole City of Chicago and lives in Mt. Prospect, so the tenancy is clearly governed by the CRLTO.  The security deposit is $1500 and the tenant pays the deposit to the landlord on March 1, 2009.  Because the landlord knows the law, the landlord immediately produces a proper security deposit receipt and deposits the security deposit that day in a financial institution that satisfies the requirements for a security deposit account.

The tenant lives in the unit for the full year without incident and the landlord and tenant execute a new lease extending the tenancy for an additional year from March 1, 2010 to February 28, 2011.  The security deposit remains the same and is transferred in full from the 2009 lease to the 2010 lease.

So, it is March 1, 2010 and the landlord’s clock is ticking.  Because the tenancy is governed by the CRLTO and because the deposit has been held for over six months, the landlord owes and must pay interest on the security deposit to the tenant.  The ordinance sets the deadline for payment.  The landlord has 30 days after the 12 month rental period to pay the tenant’s security deposit interest.  The twelve month period ended on February 28, 2010, so the landlord must pay the interest on or before March 30, 2010,

The ordinance requires that interest be paid at the rate determined under section 5-12-081.  The lease was entered into in 2009, so the landlord should use the 2009 interest rate – even though a portion of the lease ran into 2010.  For 2009, the City of Chicago interest rate was .12%.  Interest is calculated as “simple interest” and begins to accrue from the start of the term of lease.  Here is the calculation for the year’s interest.

(Security Deposit) x (days in rental period divided by days in twelve month period) x (interest rate)
$1500 x (365/365) x .0012 = $1.80.

The landlord must pay $1.80 by way of check or credit against rent to the tenant on or before March 30, 2010.

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8 Responses to Calculating security deposit interest payment on a one year lease per the CRLTO

  1. ho ka lok says:

    Hi, if I have received security deposit from my tenant (zip code IL60605) on Sep 2011,
    his 1st lease is 7 Sep 2011-31 Aug 2012; then 1 Sep 2012-Aug 2013 with a security
    deposit of $2750, how interest should be calculated for $2750 held for two years ?
    Thanks ! Charlotte

    • Richard Magnone says:

      The post above explains the calculation of interest. However, if a security deposit is held for two years, interest needs to be paid twice – once at the end of the first year and once at the end of the second year.

  2. Robert says:

    Does the rate you pay the tenant reset each year? I signed a lease with a tenant in November 2009, each year the tenant has renewed. Nov 2009-Oct 2010 I pay the 2009 interest rate. For Nov 2010-Nov 2011 do I use the 2010 interest rate?

    • Richard Magnone says:

      Interest on deposits is to be paid annually and the City sets a new rate every year. Landlords who wait until the end of a 3 year lease to pay three years of interest at once are not doing it correctly.

  3. Tony says:

    What if the tenant did not pay their rent on time each year and after 2 years decided to move does landlord owe interest or just security deposit to be returned. Provided there was no damages

    • Richard Magnone says:

      Regardless of a tenant’s performance, a landlord must pay interest (or offset it against rent) at the time required by the ordinance. The ordinance is specific as to how this must be done.

  4. LATANYA JONES says:

    I moved into a unit 4/7/2009 paying a security deposit of $1200….with no interest ever being given to me. The new managment company is not requiring new move in’s to pay a deposit, so they offered me a deduction on rent until the depositt is reimbursed. What would the interest owed?

    • Richard Magnone says:

      On this website, we provide information for landlords. This is the sort of legal question that requires an evaluation of your situation and the provision of legal advice. If you are interested in hiring us to perform those services, please give us a call and we can see if we are a match for an engagement.