On April 30, 2021, the First District Appellate Court struck down Chicago’s Protecting Tenants in Foreclosed Rental Properties Ordinance, better known as the Keep Chicago Renting Ordinance (“KCRO”) finding it is completely preempted by Illinois’ Rent Control Preemption Act (“RCPA”). The decision is Rivera v. Bank of New York, et at. 2021 IL App (1st) 192188 (Apr. 30, 2021). Noonan & Lieberman represented the defendants.
The KCRO was enacted by the City of Chicago in 2013 to address problems existing in the residential rental market caused by the foreclosure crisis of the late 2000’s. The KCRO was intended to incentivize a new owner of foreclosed property to keep tenants with rental agreements in place. It did so by requiring the owner to offer to extend the lease at no more than 102% of the current rent or else pay the tenant a fee of $10,600 to cover relocation expenses. Should the owner fail to comply with the Ordinance, the tenant could recover damages in an amount equal to two times the relocation assistance fee and attorney’s fees.
The plaintiff in Rivera alleged she was a qualified tenant and that the owner violated the KCRO by not offering to extend her lease or pay a relocation assistance fee. The owner argued , among other things, that the KCRO was preempted by the RCPA because it is effectively rent control legislation which the RCPA prohibits. This statutory challenge prompted the City to intervene. The trial court initially granted the motion but subsequently vacated the dismissal. In vacating the dismissal the trial court held that although the KCRO is preempted by the RCPA, the rent limitations can be severed from the Ordinance without defeating its legislative purpose and intent. The case proceeded to trial where the court found in favor of the plaintiff awarding her $21,200 in statutory damages and over $99,000 in fees and costs.
On appeal, the Appellate Court rejected the argument that the KCRO does not impose “rent control”. The City argued that the RCPA distinguishes between laws that have the effect of controlling rent (section 5) and laws that “regulate or control” rent (section 10). It posited that section 10 which applies to Home Rule Municipalities prohibits only traditional rent control laws. The court held that there is no meaningful distinction in the two sections. Further, there was no need to resort to interpretive tools to determine what “traditional rent control” means because the terms “regulate” and “control” are not ambiguous. The KCRO clearly regulates and controls the amount of rent an owner may charge. The Court flatly rejected the plaintiff’s argument that the KCRO was not rent control because an owner could avoid the rent limitation by deciding not to rent the property at all and instead pay the relocation fee. It explained that the argument “strains logic” because under that analysis no rent control measure would ever run afoul of the RCPA.
The Court next turned to the argument that the offending portion of the Ordinance can be removed without upsetting the purpose of the Ordinance. The Court noted that in ordinary circumstances, an owner of a foreclosed property may evict tenants following notice. The KCRO was enacted to avoid evictions in foreclosed property. To effectuate this purpose, it excused the owner from paying the relocation assistance fee if it agreed to extend the tenants rent by not more than 102% of the previous year’s rent. But removing the rental rates from the Ordinance also removes the incentive for owners to retain tenants. An owner wishing to remove a tenant can avoid paying the relocation fee by quoting the tenant a prohibitively high rental rate, knowing the tenant will refuse. “Thus, the (valid) relocation fee is inseparable from the (invalid) rent limitations”. The City Council would not have passed the KCRO without the rent limitations and the KCRO is completely preempted by the RCPA.
Author
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Jim is a founding partner of Noonan & Lieberman. Jim has more than 25 years of experience in civil litigation on behalf of creditors, servicers, business and real estate owners.
