News Alert – In 2013, the City of Chicago developed an ordinance concerning tenants in foreclosed rental properties. Section 5-14-010 of the ordinance states that the purpose of the ordinance is to, protect and promote the health, safety and welfare of [the Citys] residents and mitigate the damaging effectsof foreclosures. Further, section 5-14-020 puts responsibilities on property owners who purchase a property via judicial sale, deed in lieu, and consent foreclosure. At the end of July 2015, the ordinance was amended to provide even more responsibilities to owners. Under section 5-14-050 (f), if the owner violates the ordinance by failing to pay relocation assistance in the amount of $10,600.00, (minus the deduction of rent from the time the owner provides a change of ownership notice and Keep Chicago Renting Notice) or offer a lease extension to qualified tenants, they are liable for damages in the amount of two times the relocation assistance amount of $10,600.00, plus attorneys fees.
Section 5-14-040(a)(1) of the ordinance requires that, within 21 days of taking ownership of a foreclosed rental property, the owner shall make a good faith effort to ascertain the identities and addresses of all tenants in the foreclosed rental property and notify the tenants in writing about relocation assistance and lease extension options by providing a Keep Chicago Renting Notice and disclosure form. Further, section 5-14-050(a)(3) of the ordinance requires that, within 21 days of receiving the disclosure form or when the owner should have received the disclosure form, the owner has to provide notice to a qualified tenant that the owner is paying the relocation assistance in the amount of $10,600.00 (minus the deduction of rent from the time the owner provides a change of ownership notice and Keep Chicago Renting Notice) or offer a lease extension. The biggest issue is determining if a tenant is qualified. Section 5-14-020 of the ordinance defines a qualified tenant as:
a person who: (1) is a tenant in a foreclosed rental property on the day that a person becomes the owner of that property; and (2) has a bona fide rental agreement to occupy the rental unit as the tenants principal residence. For purposes of this definition:
a rental agreement shall be considered bona fide only if:
the mortgagor, or any child, spouse, or parent of the mortgagor residing in the same dwelling unit with the mortgagor, is not the tenant;
the rental agreement was a result of an arms-length transaction; and
the rental agreement requires the receipt of rent that is not substantially less than fair market rent for the property, or the rental units rent is reduced or subsidized due to a government subsidy.
5-14-020 Protecting Tenants In Foreclosed Rental Properties
When confronted with information that could indicate that the tenant had a bona fide written or oral agreement with the former landlord, it is suggested to error on the side of caution and assume that the occupants are qualified tenants.
In an ideal scenario, the tenants return the disclosure form and/or provide occupancy information. The owner is then able to review the information and make a determination as to whether the tenants are qualified tenants. Often, tenants are non-responsive by not completing the disclosure form or disclosing occupancy information to the owner. This situation may leave the owner the most vulnerable to being liable for failure to comply with the ordinance.
How can owners avoid liability for failure to comply with the ordinance? It is suggested that the owner provide the tenant with both a relocation assistance offer in the amount of $10,600.00 (minus the deduction of rent from the time the owner provides a change of ownership notice and Keep Chicago Renting Notice) and a lease extension offer before moving forward with providing the tenant with any notices to quite possession and filing eviction court actions. The caveat is that the offers do not need to acknowledge that the tenant is a qualified tenant. The offer only needs to indicate that the owner is offering relocation assistance or a lease extension in accordance with the ordinance if the tenants are qualified tenants. The offer also needs to include the owners agents/attorneys contact information and advise the tenants to provide the owners agent/attorney with occupancy information. In order to prevent confusion and waiver of an offer, it is suggested that the owner provide one offer at a time, though in no particular order. If the owner provides a lease extension offer first, they should wait 21 days before sending out a relocation assistance offer or a notice to quite possession. The effect of this process waives a qualified tenants rights to a lease extension as indicated in section 5-14-050(a)(3) of the ordinance.
Can an owner only offer a lease extension and still avoid liability for failure to comply with the ordinance? It can be risky to offer a lease extension, but not offer the relocation assistance. In an ideal scenario, a responsive tenant who is a qualified tenant is more than likely going to be more interested in accepting the relocation assistance over a lease extension and will advise the owner that the unit is not habitable or rentable. When a unit is not habitable or rentable, a lease extension is invalid and an offer to provide a replacement unit would have to be offered in order for a lease extension offer to be valid. Alternatively, if you only provide a relocation assistance offer, you will not waive a qualified tenants right to a lease extension if the property is in fact habitable or rentable. Unless the owner can confirm whether the property is rentable, it is suggested that both relocation assistance and a lease extension are offered.
What legal effect does providing both a relocation offer and lease extension offer have when evicting an occupant who is a qualified tenant? The most important thing that comes with providing a lease extension offer is that qualified tenants waive their rights to being able to receive a lease extension if they do not respond to the offer within 21 days. On the other hand, we suggest that the owner continue to offer relocation assistance in accordance with the ordinance up until an Order For Possession or judgment is entered against the qualified tenant. Unless an Order For Possession or judgment is entered, the Ordinance is not clear on when a qualified tenant can waive their right to relocation assistance.
If you have any questions, please contact Mitchell Shanks, Associate Attorney, Potestivo & Associates, P.C. at (312) 263-0003, ext. 2103, or firstname.lastname@example.org.