8.3 RLTO Security Deposit Rules & Penalties

8.3 RLTO Security Deposit Rules & Penalties

Quick Answer: Under Chicago RLTO § 5-12-080, covered landlords must give a receipt, hold the deposit in a federally insured interest-bearing Illinois account, disclose the bank, pay Comptroller-rate interest (0.01% for calendar 2026), credit interest within ~30 days after each 12-month period, and return deposit plus interest within 45 days after vacating (with itemized damage deductions). Violating subsections (a)–(e) can mean damages of two times the security deposit plus interest (attorney's fees themes apply in tenant enforcement).

Section 8.1 covered statewide SDRA procedure — which, under current law, already binds all residential lessors on itemization, 45-day return, and double-deposit damages. This section is Chicago's high-penalty deposit machine for RLTO-covered units: receipts, federally insured Illinois accounts, bank disclosure, Comptroller-rate interest, and 2× deposit plus interest for § 5-12-080(a)–(e) violations. RLTO does not replace SDRA; it stacks stricter Chicago rules on covered tenancies, while the owner-occupied ≤6 exemption can remove a building from RLTO without removing it from statewide SDRA. Leasing agents who collect move-in funds in Chicago need a compliance checklist, not vibes.

Receipt at the time the deposit is received

Section 5-12-080(b) generally requires that any landlord who receives a security deposit give the tenant or prospective tenant, at the time of receipt, a receipt stating the amount, the name of the person receiving it (and, if an agent, the landlord for whom it is received), the date, and a description of the dwelling unit, signed by the person receiving the funds. Electronic funds transfers have parallel electronic-receipt rules. Failure to comply can entitle the tenant to immediate return of the security deposit. Agents who "just Venmo the owner" without issuing the ordinance-compliant receipt create instant risk.

Separate federally insured account — no commingling

Under 5-12-080(a), the landlord must hold security deposits in a federally insured interest-bearing account in a bank, savings and loan, or other financial institution located in the State of Illinois. The deposit (and interest due) remains the tenant's property, must not be commingled with the landlord's assets, and is generally protected from the landlord's creditors. Dropping tenant deposits into the operating checking account "for a few days" is a classic violation — even if every dollar is later restored.

Disclose the financial institution

The name and address of the financial institution where the deposit will be held must be clearly and conspicuously disclosed in the written rental agreement. If there is no written lease, the landlord must notify the tenant in writing within 14 days of receiving the deposit. If the deposit later moves to a new institution, written notice of the new name and address is due within 14 days of the transfer. Exam items love the disclosure duty because it is easy to forget on a homemade lease.

Annual interest at the City Comptroller rate — 0.01% for 2026

When a landlord holds a security deposit or prepaid rent under this section for more than six months, interest accrues from the beginning of the rental term at the rate set under § 5-12-081 for the year the rental agreement was entered into. The City Comptroller announces the rate. Per the Chicago Department of Housing Security Deposit Interest Rate Lease Rider / notice for 2026, the rate for January 1–December 31, 2026 is 0.01% (the same 0.01% figure that has applied for many recent years). Dollar amounts are tiny at that rate; penalties for skipping interest are not.

The landlord must, within 30 days after the end of each 12-month rental period, pay the interest in cash or as a credit against rent. That "about 30 days after each anniversary period" timing is a standard exam hook.

Return within 45 days after vacating

Under 5-12-080(d), within 45 days after the tenant vacates the dwelling unit (or within seven days after certain fire-related termination notices under the ordinance), the landlord must return the security deposit or remaining balance and the required interest. Permissible deductions include unpaid rent not validly withheld under law and reasonable costs to repair damage caused by the tenant beyond normal wear and tear. When deductions are taken, the landlord must provide an itemized statement of damages (with cost/receipt themes) within 30 days of vacating — parallel to statewide SDRA documentation (which already applies to residential lessors of every building size), but enforced through RLTO's own 2× deposit plus interest penalty scheme on covered Chicago units.

Damages: two times security deposit plus interest

Section 5-12-080(f)(1) is the hammer: subject to a narrow "deficient interest amount" safe harbor in (f)(2), if the landlord fails to comply with any provision of § 5-12-080(a) through (e), the tenant shall be awarded damages equal to two times the security deposit plus interest at the § 5-12-081 rate. This does not block other recoverable damages under the chapter. Tenant suits under RLTO commonly also pursue attorney's fees and costs under the ordinance's remedial framework — exam language often short-hands the risk as "2× deposit plus interest (and attorney's fees)."

Notice the multiplier attaches to the security deposit plus interest, not merely "whatever interest was missed." That is why a landlord who never opens the proper Illinois account, never discloses the bank, or never returns the balance on time can face a judgment many times larger than the interest that would have been due at 0.01%.

Agent checklist before accepting Chicago move-in funds

1. Confirm the tenancy is RLTO-covered (not an owner-occupied ≤6 exemption).
2. Use broker-approved receipt language and deliver it when funds are received.
3. Verify the deposit will sit in the disclosed federally insured Illinois account — never your personal account.
4. Attach the current interest-rate rider/summary reflecting 0.01% for 2026 when deposits are required.
5. Diary the annual interest credit and the 45-day post-vacate return with 30-day itemization if deducting.

Treat RLTO deposit compliance as a supervised brokerage system. One missed receipt or one operating-account mix-up can cost the owner far more than the deposit ever secured.