ILLINOIS APPELLATE COURT IMPOSES STRICT COMPLIANCE STANDARD FOR “KEEP CHICAGO RENTING ORDINANCE”

Last month the Illinois First District Court of Appeals (Third Division) affirmed a judgment entered in favor of Cook County tenant Geneva Norman (“Norman”) against the tenant’s new building owner, U.S. National Bank Assoc., as Trustee, etc. (“US Bank”) for violations of a state ordinance known as the “Keep Chicago Renting Ordinance.”i Norman v. U.S. Bank Nat’l Ass’n as Tr. for Structured Asset Mortg. Investments II, Inc., — N.E. 3d — , 2020 IL App (1st) 190765 (Ill. App. Ct. June 30, 2020). US Bank held a mortgage on a condominium unit. The mortgagor ostensibly stopped making payments, US Bank foreclosed and then purchased the unit at the foreclosure sale in October 2015. Norman occupied the unit at that time and had been a resident of the unit since 1993, “regularly” renewing her lease.ii Upon purchasing the property, US Bank hired a law firm which ostensibly hired “a series of property managers”iii to manage the foreclosed unit. Over the next few months, Norman received correspondence regarding the property from various law firms and property managers; however, the communications failed to satisfy the requirements of the Keep Chicago Renting Ordinance (“KCRO” or “the Ordinance”).

The KCRO, enacted in 2013 in response to the mortgage foreclosure crisis, sought to eliminate “the common practice of foreclosing lenders to quickly and indiscriminately evict any tenants.”iv Its stated purpose was to “preserve, protect, maintain and improve rental property and prevent occupied buildings from becoming vacant after foreclosures.”v Pursuant to its stated goals, the Ordinance required a new owner of a foreclosed property to communicate with a tenant first to advise of the ownership change and then to provide the tenant with information about the new owner’s intentions for the rental propertyvi. An amendment in 2015 put time restraints on these communications requiring the new owner to advise the tenant within 21 days of the ownership change and then (again within 21 days) to provide the tenant with notice that the owner was either (1) willing to renew or extend the tenant’s rental agreement or (2) it was willing to pay the tenant a “one-time relocation assistance fee of $10,600.”vii

Under the KCRO, US Bank was required to offer “relocation or continued tenancy…on or before the 63rd day of taking ownership.”viii US Bank’s first communication (via its attorney) to Norman came 26 days after US Bank became the unit owner. Besides being five days late, it was deficient in several other aspects. Firstly, the communication was posted at the property, but it was not mailed to the unit as required. Secondly, the notice contained inaccurate contact information so Norman’s phone calls to the number listed went unreturned. Thirdly, the tenant formix attached to the notice was not dated, did not include the new owner’s name and contact information, and “did not request that Norman complete and return the form” as required by the Ordinance.x

The next communications were from a property manager (“Przybysz”) who failed to timely respond to Norman’s request to renew her lease. Przybysz ultimately advised via email that Norman was required to move out and offered $2,640 to $2,200 (depending on the move out date) “to assist in relocation.”xi The offered amount to relocate was well short of the $10,600 required by the KCRO. Norman remained in the unit and did not accept the proffered assistance. In February 2016, another property management company (“Carrington”) contacted Norman and advised her to send rent payments to them. Norman did so, but shortly thereafter received a final eviction notice from the sheriff’s office. The sheriff’s office suspended the eviction process when Norman “went in person” and informed the sheriff “she was a tenant who had no knowledge of the eviction order.”xii Thereafter, Carrington returned Norman’s rent check “without explanation.”xiii

Finally, 187 days after US Bank became the unit owner, a fourth property management company (“Infinity”) offered a lease extension to Norman. Infinity conditioned the lease extension on an inspection of the unit, proof of Norman’s lease and proof of payment. Norman complied, signed the lease extension on May 3, 2016 and returned the documents to US Bank. Unbeknownst to Norman, about a week before she signed the lease renewal US Bank sold the property to Cloudview Real Estate, LLC (“Cloudview”). It appears Cloudview honored the lease renewal as the Court’s written opinion does not discuss the lease renewal further.xiv

Notwithstanding the lease renewal, in September 2017, Norman sued US Bank in circuit court for violations of the KCRO. US Bank moved to dismiss, unsuccessfully, and then Norman moved for summary judgment. US Bank argued Norman’s acceptance of the lease renewal constituted waiver of any rights under the KCRO. Alternatively, US Bank argued it substantially complied with the requirements of the Ordinance so damages should not be awarded. The court disagreed with both of US Bank’s arguments and awarded Norman $21,200xv in statutory damages and $45,505 in attorneys’ fees for US Bank’s violations of the KCRO.xvi

On appeal the First District agreed with Norman and the lower court. Firstly, the Court explained Norman did not waive her rights under the KCRO because none of her actions demonstrated an intention to give up her rights under the Ordinance. To the contrary, Norman routinely acted in a manner consistent with her rights under the KCRO such as requesting to renew her lease, hiring an attorney to assist with renewing her lease and refusing the deficient relocation funds.xvii

Secondly, the Court concluded the KCRO mandated strict, not substantial compliance. The Court pointed out the mandatory language of the ordinance was “clear and unambiguous” frequently using the word “shall” in the context of the timing and content of notice requirements, offers to renew or relocate and mandating damages and attorneys’ fees for violations.xviii The Court concluded the combination of “mandatory obligation[s]” and “significant financial consequences” for failure to comply prevented an interpretation that allowed for substantial rather than strict compliance of the KCRO’s requirements.xix US Bank still argued that the mandatory nature of the language in the KCRO could be overlooked since the “purpose of the statute [could] be realized without strict compliance” and US Bank’s failure to strictly comply with the 63-day deadline for offering Norman a rental renewal did not result in prejudice.xx US Bank reasoned Norman “lived rent free many months” and ultimately renewed her lease so any awarded damages, including attorneys’ fees, would be a “windfall.”xxi The Court was unpersuaded by these arguments.xxii

Lastly, the Court found the trial judge did not abuse his discretion when he awarded $45,505 in attorneys’ fees pointing out “the issue of fees was fully briefed [below]” and a hearing conducted during which “both parties had an opportunity to argue.”xxiii The Court elaborated that “at no point did U.S. Bank request an evidentiary hearingxxiv [on the fee issue]” so US Bank was prohibited from complaining about the lack of an evidentiary hearing on appeal. The First District affirmed Norman’s judgment in its entirety.

The take-away here is to hire competent counsel or a competent property management company or both before purchasing foreclosed property which is subject to KCRO requirements. Failure to strictly comply with the various requirements within the tight 63-day deadline can prove costly. That being said, implementation of a few simple processes and protocols should simplify compliance and prevent violations. Notably, the Ordinance does not prohibit conditional offers at least with regard to the relocation assistance. Since the owner is only required to pay “relocation assistance” to a “qualified tenant” any offer for same should be conditioned upon receipt of proof from the tenant within a specific time period that the tenant is a “qualified tenant.”xxv Further, the owner does not have to pay the relocation fee if the tenant does not enter into any owner proposed (and compliant) rental renewal or extension agreement.xxvi Offers should be made promptly with clear deadlines and include a provision that “time is of the essence” as the strict compliance standard should apply equally to the owner and the tenant.

i The pertinent provisions of the Keep Chicago Renting Ordinance are codified at Chicago Municipal Code Chapter 5-14 and can be found at: http://chicago-il.elaws.us/code/coor_t5_ch5-14.

ii Norman, at *1.

iii Norman, at *3.

iv Norman, at *1.

v Norman, at *4 (quoting Chicago Municipal Code 5-14-010).

vii Norman, at *2. This latter option was only available to a “qualified tenant” defined by the First District as “an individual (1) who was using the property as his or her primary residence on the day ownership changed hands, (2) whose household does not include ‘the mortgagor, or any child, spouse, or parent of the mortgagor,’ (3) who entered into the rental agreement through ‘an arms-length transaction,’ and (4) whose rent is neither ‘substantially less than fair market rent’ nor reduced by a government subsidy.” Norman, at *2 (quoting Chicago Municipal Code § 5-14-020 (amended Apr. 15, 2015)).

viii Norman, at *4.

ix The “Tenant Information Disclosure Form” was to be completed by the tenant and returned to the new owner within 21 days so the owner could determine if the tenant was a “qualified tenant” and therefore entitled to receive $10,600 in relocation assistance if the owner opted not to renew the lease. Norman, at *2; Chicago Municipal Code 5-14-050(f).

x Norman, at *3.

xi Norman, at *3.

xii Norman, at *3.

xiii Norman, at *3.

xiv Norman, at *4.

xv The Ordinance reads: “…[I]f an owner fails to comply with this section, the qualified tenant shall be awarded damages in an amount equal to two times the relocation assistance fee.” Chicago Municipal Code 5-14-050(f).

xvi Norman, at *4.

xvii Norman, at *6.

xviii Norman, at *7.

xix Norman, at *7.

xx Norman, at *8.

xxi Norman, at *5 and *8.

xxii Norman, at *8.

xxiii Norman, at *9.

xxiv Norman, at *9.

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