How long will it be until Chicago landlords mimic San Francisco’s landlords?

quitIn addition to handling landlord-tenant legal issues for our clients, our firm also handles real estate closings.  One interesting trend I have taken notice of recently is the number of my landlord clients who have decided to quit.  That’s right, they are quitting the landlording game.  During the last week of May, I closed a real estate sale for a client I had helped just a few months before remove an unruly tenant from her condominium unit.  Just last week, a client hired me to “handle my eviction and then help me with the sale of this place”.  The scenario is getting more and more common.  A landlord comes to me to get the tenant out and then to help with the sale of the real estate.  It is a trend that I think will continue.

And why would it not?  Author Scott James just penned an op-ed in the New York Times entitled “King of My Castle? Yeah, Right”.  In the piece, he describes the current housing crisis in the City of San Francisco.  There are just not enough rentals in the city.  He explains that the main reason for the housing shortage is the city’s pro-tenant laws.  Landlords in San Francisco have had enough.  They just don’t rent their units.  James owns a two flat and after years as a landlord has decided not to let the space.  He explained that a city clerk contacted him in regard to his property tax appraisal and asked whether or not his downstairs unit (James lives on the top floor) was rented.  When he asked why this was relevant, the clerk explained that “…because of the city’s troublesome rental laws, a tenant-free property is much more valuable.”

Is Chicago on the precipice of a similar “crisis”?  I think so.  The CRLTO’s profile has risen greatly in the past five or so years.  Chicago landlords regularly charge non-refundable fees in lieu of security deposits to avoid the ordinance’s onerous penalties.  Compliance with the ticky-tack provisions with regard to deposits and summaries is hard (after all, how does it benefit a tenant to know the name and address of the bank where their deposit is being held and is that failure to disclose really worth two times the deposit plus attorney’s fees and court costs?).  Landlords who are doing everything right are the exception not the rule.  Add to the CRLTO the heating cost disclosure law, overly-paternalistic building codes, the life safety ordinance, the Cook County lock change law, radon disclosures, lead paint disclosures, crime free leasing disclosures and addendums, housing registration requirements, federal fair housing laws, State fair housing laws, Cook County fair housing laws, and Chicago fair housing laws and landlording is not a game for the timid or weak-willed.  Oh yeah, we just added that “Keep Chicago Renting” law too.  It is far easier to give up and throw in the towel than it is to learn, know, keep up with and comply with all of these laws.

Are the laws flawed?  Some.  Do we need safety standards?  For sure.  Are there bad landlords who need to be punished?  Yes.  But, I think we are at a tipping point.  My lease rider has become a ridiculous mix of silly, obvious, and required provisions and disclosures – all to keep from a tenant being able to call all of the shots.  Have we reached critical mass yet?  At any given time, there are five to ten pieces of pending legislation that would make landlords fall out of their chairs if they were passed.  And hey, I benefit from clients paying me to do closings and from clients paying me to draft leases!  The legislative insanity needs to stop before banks stop lending and foreclosing and before all of the landlords quit.  Housing rights advocates called this week’s passage of the Keep Chicago Renting law a “victory”.  Will it be a victory if it causes landlord’s to quit?

2 thoughts on “How long will it be until Chicago landlords mimic San Francisco’s landlords?”

  1. The big Residential REITs are doing fine. The 1000+ unit investors who are already established are doing fine. Res rental property managers are rising stars in this city. As is the case with all business, this is another situation where big corporate will feel very little pain while small business owners are nickel-and-dimed to death.

    However, it’s the little guys who are largely maintaining Chicago’s aging rental housing stock. Outside of downtown, the average apartment building predates 1950, and many are over a century old. Our architectural diversity rests on the shoulders of these guys. Big corporate investors would tear down our little two-flats and build bland, high density boxes in their stead.

    Maybe there’s something to be gained by roping the architectural preservation folks into this crusade. It’s time they looked beyond crossword puzzle architects anyhow.

    • I agree that those investors who have “critical mass” can better shoulder these difficulties. I just saw a television news piece on how well they are doing and how they view this as a time of vast investment opportunity. I do wonder if their tune will change in a town like Chicago if they get sued in class-actions involving mishandling of security deposits. These new kids with bags of cash might be stepping into a difficult situation if they don’t do their homework.

      As for the little guys, I shudder to think about saddling these folks with even more regulations. Oh wait, you saw the bedbug law, right?


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