Landlords win case over move-in fee in lieu of security deposit

For a number of years, landlords in the City of Chicago have sought to avoid the undue burdens and unreasonable potential liability resulting from the Chicago Residential Landlord Tenant Ordinance’s requirements related to security deposits by collecting all kinds of “non-refundable fees”.  Some landlord collect a “non-refundable processing fee”, administrative fee, additional rent, or a “non-refundable move-in fee”.  Tenants rights attorneys and advocates have long shouted “no fair!” at landlords engaging in such practices.  One advocate I know said “this is just the way landlords are trying to avoid liability for security deposit violations!”  Duh!

Almost as soon as landlords started collecting non-refundable fees, tenant’s-rights attorneys have challenged them.  Just a few days ago, the Illinois Appellate Court for the First District ruled on a case, Steens v. Mac Property Management, LLC, involving a non-refundable move-in fee and determined that the fee did not violate the Chicago Residential Landlord Tenant Ordinance and was properly non-refundable.  A big win for the landlords for sure.

In the case, the tenancy at issue was covered by the CRLTO.  The landlord collected a nonrefundable $350 move in fee.  The fee was detailed in a “welcome package” presented to the tenant by the landlord.  The tenant paid the fee.  The tenant in the case later contended that the fee “was a disguised security deposit or prepaid rent” and was “subject to the RLTO provisions regulating such items”.  A trial court ruled that the RLTO did not prohibit non-refundable move-in fees and dismissed the counts related to the tenant’s claims.  The tenant appealed and the appellate court affirmed the lower court decision.

Let’s look at the nuts and bolts of the appellate court’s decision.  The court first considered whether the move-in fee was a security deposit under the RLTO.  The court determined that a security deposit is money deposited by the tenant to secure the tenant’s full and faithful performance under the lease.  The court noted the following facts about the move-in fee in this case:

According to the welcome statement, the move-in fee was to be paid by March 20, 2008, 5 days before the lease was executed and more than 10 days before the move-in date of April 1, 2008. The welcome statement described the move-in fee as nonrefundable. The move-in fee was in the amount of $350, an amount which is less than one-half of the monthly rent of $715. Our consideration of the plain language of the welcome statement leads to a conclusion that the move-in fee was a “charge” made in return for plaintiff’s moving into her unit, which would cover defendants’ resulting expense, time, and the interruption of business related to the move.

From those facts, the court concluded that the move-in fee is not a security deposit because it appears inadequate to be considered security for rent or the tenant’s full (emphasis added by the court) and faithful performance of the lease and because it was explicitly made nonrefundable in the “welcome statement”.  The court specifically pointed out that the “move-in fee was in the amount of $350, an amount which is less than one-half of the monthly rent of $715”.  The court noted that the move-in fee had “none of the earmarks of a security deposit”.

After making the determination that case law from other jurisdictions supported the court’s conclusion that “the move-in fee, a one-time upfront charge relating to plaintiff’s move into her apartment, which plaintiff paid with full knowledge that it was nonrefundable, was not a security deposit”, the court next turned its attention to whether or not the move-in fee was prepaid rent under the CRLTO.

The court cited the definition of rent in 5-13-030 of the CRLTO which indicates that rent is “any consideration, including any payment, bonus, benefits or gratuity, demanded or received by a landlord for or in connection with the use or occupancy of a dwelling unit”.  The court quickly determined that “a one-time nonrefundable fee for moving into the unit is not “any” payment made in connection with plaintiff’s use or occupancy of the unit and does not fall within the RLTO’s unambiguous definition of rent.”

So, as a practical matter, what we have here is some guidance on how a court will review the issue of a non-refundable fee.  Keep in mind, this was an appellate court case and not a decision rendered by the Illinois Supreme Court.  It is possible that other cases can and will make their way through the appellate process, but for now, this is the best guidance we have.  From this case, we can gather some of the factors that would tend to make a non-refundable move-in fee legal.  A few of these:

The fee is less than half of one month’s rent;
The fee is clearly described in writing as non-refundable;
The fee is not to secure the tenant’s full and faithful performance of the lease;
The fee is collected in advance of the move-in date

Smart landlords who collect non-refundable fees and who hope to receive similar favorable treatment by the courts would do well to consider adopting these same factors as the landlord in the case.  Of course, landlords should not try this at home and should always consult with an attorney.  Landlords who need help with revising their leases and leasing practices should feel free to give us a call to see if we can assist them in a legal engagement.