Calculating 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.