UPDATE: the City has released the official text of the ordinance
The Mayor asked you landlords to give tenants some grace. She is now imposing grace upon you. So much for your housing solidarity pledge. Apparently, you landlords can’t be trusted to give grace voluntarily. The City of Chicago Housing Committee met this afternoon (6/15/2020) and after about three hours of debate, passed the Mayor’s Covid-19 “Eviction Protection Ordinance” on to the full City Council for a vote on Wednesday, June 17, 2020 at 10am. This is a new Chicago ordinance that will apply to residential (not commercial) properties. We have what we think is an early copy of the law. So, based on that, let’s take a dive into what is likely to pass into law on Wednesday (6/17/2020).
Who does this new law apply to? Like the Chicago Residential Landlord and Tenant Ordinance, this law will apply to every rental agreement for a dwelling unit located in the City of Chicago unless excluded by the new law. And here’s a doozy. Excluded from the law are most of the usual exclusions contained in subsections (b) through (f) of section 5-12-020 of the CRLTO plus some hotels and inns that have contracts with the City, County, State or Federal governments for Covid-19 shelters. Conspicuously absent is the exclusion for owner-occupied properties of six or fewer units. A few of the aldermen argued that those owner-occupied landlords should be excluded but could not garner enough support. Yes, small time owner-occupied landlord, the City has decided that you are a fat-cat and you can wait for your rent along with the rest of the landlords.
The City is imposing a moratorium on any notice of termination for failure to pay rent due to Covid-19 impact until 60 days after the Governor’s executive orders 10 and 30, or any supplement, extension or amendment of them, expires, except as provided by the rules for such notices set up by this ordinance. Currently, Executive Order 2020-30 extends to June 27, 2020, meaning that this law would be in force until at lease August 27, 2020.
So basically, if a housing provider wants to serve an eviction notice for non-payment of rent at any time during the City’s moratorium period, the landlord must do it according to the terms of this new ordinance. What are those terms?
New Process for Notice of Termination for Failure to Pay Rent
For ease of our discussion, I’ll refer to a “notice of termination for failure to pay rent” as a 5 day notice because that’s the most common time period. Please note that some (seemingly badly drafted) leases extend this time period to 10 or even 30 days, so always check your lease before serving any notice. On to the rule. During the moratorium, if a tenant fails to pay some or all of the rent, the landlord may issue a 5 day notice informing the tenant that the landlord intends to terminate the tenant’s rental agreement if the rent due is not paid within five days (just like a regular 5 day notice). That notice is also going to have to be accompanied by a Covid-19 notice to be provided by the City of Chicago.
However, if, at any time before or during the five-day period, the tenant provides the landlord with a “Tenant Notice of COVID-19 Impact”, the landlord must wait an additional seven days known as the “negotiation period” after expiration of the 5 day notice before filing either an eviction action or a suit for rent and damages. A “Tenant Notice of COVID-19 Impact” can be delivered in any kind of digital, electronic or other written communication that “reasonably informs such landlord that the tenant is experiencing a COVID-19 Impact. A “Covid-19 Impact” is any loss, reduction, or delay in receipt of income, or loss or reduction of employment attributable in whole or in part to COVID-19. I can already imagine the difficulty this is going to cause. That’s going to be pretty broad. Let’s say a tenant is getting unemployment plus an additional $600. I’d say, according to this definition, the tenant has still had a Covid-19 impact.
Seven Day Negotiation Period
During the negotiation period, the landlord is obligated to make a reasonable attempt to contact the tenant and engage in good faith negotiations to reach a mutually satisfactory agreement for repayment of the unpaid rent. A landlord is prohibited in its negotiations from requesting information from the tenant related to retirement accounts, assets, or personal property. (I’m not sure how you can know what the tenant can pay if they don’t have to tell you what assets they have, but hey, that’s the rule).
The City indicates that the terms and conditions of any agreement for the repayment of rent may include an offer by the landlord to:
- accept a repayment plan that amortizes each missed rent payment over not less than 60 days;
- submit the matter to mediation or to binding arbitration;
- apply the tenant’s security deposit and/or interest on the security deposit toward the unpaid rent to reduce the amount of the rent owed;
- provide the tenant with an opportunity to move out of the dwelling unit, in a reasonable time that takes into account any delays caused by COVID-19 to either party or to the rental market, in exchange for a complete or partial waiver of any unpaid back rent; or
- enter into a lawful agreement containing other mutually acceptable terms and conditions to otherwise compensate the landlord for the unpaid rent.
Any such agreement must be written in plain language and must clearly describe the its material terms. If there is going to be a repayment plan, the agreement must list the applicable payment amounts, interest rates, and payment due dates. Additionally, a landlord cannot reject a repayment agreement because it relies on a third-party funding source like a charity or public rental assistance funds. Finally, a landlord cannot require a tenant to sign a non-disclosure agreement as part of any repayment agreement nor can a landlord require a tenant to waive any tenant right related to the condition or habitability of the rental unit.
Impact on Eviction Cases
In the event that a landlord files an Eviction Action for non-payment of rent in a case where the Negotiation Period applies, the landlord’s eviction pleadings must include that “the landlord made reasonable attempts to contact the tenant and engage in good faith negotiations with the tenant to reach a mutually satisfactory agreement pertaining to the unpaid rent.” In such a case, the landlord must provide proof of this fact in the form of affidavits, written notices and communications, or other contemporaneous documentation.
Tenants who are defendants in such cases are given an affirmative defense from eviction if they argue that the landlord failed to make reasonable attempts to contact the tenant or to engage in good faith negotiations with the tenant to reach a mutually satisfactory agreement pertaining to the unpaid rent. So, landlords should anticipate fights in court with defendants over what exactly is a good faith negotiation.
Landlords who commenced their eviction lawsuit prior to the effective date of the new ordinance do not have to comply with its terms.
One Interesting Safe Harbor Related to Security Deposits
I have advocated on this blog that this pandemic created a great opportunity for landlords who know they have Section 5-12-080 security deposit violations to “cure” those violations by negotiating to give those deposits back (1) as a way to give grace to tenants and (2) to obtain a release for any security deposit violations under the ordinance. Maybe someone at the City is reading this blog? Possibly, because the ordinance contains an interesting provision that if a landlord and tenant agree to apply a tenant’s security deposit or interest accrued thereon to unpaid rent, then the tenant will be deemed to have “waived any claims arising under Sections 5-12-080 and 5-12-081 of the Code against the landlord for such security deposit or interest on the security deposit, to the extent that the landlord credited the security deposit and any accrued interest on the security deposit toward payment of the unpaid rent.”
This is a timely way that landlords who are aware that their security deposit and interest handling procedures haven’t quite been up to snuff might be able to get themselves out of a tight situation.
A few other random points. The ordinance does not apply to evictions related to anything other than the non-payment of rent. If a tenant breaches a lease for reasons other than non-payment, an eviction can still proceed as normal.
Like the Governor’s executive order, the ordinance provides that nothing in the ordinance relieves any tenant from the obligation to pay rent or from complying with the terms of their rental agreement or any applicable repayment plan. This second part is interesting and we’ll need to think this one through. Presumably, to get to the point of a repayment plan, a landlord must have already served a 5 day notice, then the landlord and tenant enter into a repayment agreement. This seems to suggest that if the tenant fails to comply with that agreement, a new 5 day notice may not be necessary. Otherwise, we would have to serve a new 5 day notice and go through the whole good faith negotiation again. I’m going to have to think on that.
Well, it is forced grace and I don’t like that. It also is going to give every tenant in the city the right to make a claim – whether baseless or not – that they have a Covid-19 impact on their housing, which could delay every single eviction case for non-payment from moving forward. In addition, there are lots of gray areas and the law says that the City can also write up some rules to further interpret this thing, so we could get bogged down in even more rules. But, its not horrible (frankly, the Mayor’s proposed 90 day “Fair Notice” ordinance is probably worse). I can see the Mayor’s desire to protect tenants without going overboard toward rent control. Landlords have already been “giving grace”. It might be refreshing to have a 7 day period where tenants come forward and negotiate in good faith with a landlord. Landlords who would like to testify before the City Council must register to do so with the Chicago City Clerk by 8am tomorrow. We will have to see how this all shakes out, but I’m guessing the pro-tenant alderman won’t think this goes far enough. I think the landlords won’t absolutely hate it (nor will they love it). I always say you know you have a good deal when both sides don’t like the end result.