The Appellate Court of Illinois, First District, recently reversed a trial court judgment in favor of a tenant and against a foreclosing lender under the Keep Chicago Renting Ordinance (KCRO) Chicago Municipal Code § 5-14-010 et seq.
In so ruling, the Appellate Court held that the Illinois Rent Control Preemption Act (the "IRCPA") (50 ILCS 825/1 et seq.) preempted the tenant's claims against the lender under the KCRO.
A copy of the opinion is available at: Link to Opinion
A tenant residing in a home in Chicago filed suit against a lender and its loan servicer alleging that after the foreclosing lender purchased the property at a judicial sale the defendants violated the KCRO by failing "to offer her either relocation assistance or an extension of her lease agreement, as required by the ordinance."
The defendants moved to dismiss arguing that the IRCPA preempted the KCRO because "[t]he Act prohibits the regulation of the amount of rent charged for residential property in the state of Illinois (id. § 10), but the KCRO, which is a Chicago ordinance, requires an owner of a foreclosed property to offer qualified tenants either a $10,600 relocation fee or extend the tenant's lease with an annual rental rate that does not exceed 102% of their current rental rate."
The trial court agreed and granted the motion to dismiss.
Thereafter, the City of Chicago (City) intervened. The City and the tenant asked the trial court to reconsider and to vacate the judgment. The trial court reversed course and vacated the judgment "finding that the KCRO's limitations on rent, while preempted by the Act, could be severed from the KCRO without running afoul of city council's intent and the underlying reason for the ordinance."
At trial, the Court found in favor of the tenant and awarded her statutory damages, attorneys' fees, and costs. This appeal followed.
The Appellate Court first analyzed whether the IRCPA preempted the tenant's KCRO claims. To resolve this issue the Appellate Court examined the language of the Chicago ordinance and the Illinois statute.
The KRCO states that the owner of foreclosed rental property:
"shall pay a one-time relocation assistance fee of $10,600 to a qualified tenant unless the owner offers such tenant the option to renew or extend the tenant's current rental agreement with an annual rental rate that: (1) for the first 12 months of the renewed or extended rental agreement, does not exceed 102 percent of the qualified tenant's current annual rental rate; and (2) for any 12-month period thereafter, does not exceed 102 percent of the immediate prior year's annual rental rate." Chicago Municipal Code § 5-14-050(a)(1).
In contrast, the IRCPA states that "[a] home rule unit may not regulate or control the amount of rent charged for leasing private residential or commercial property. This Section is a denial and limitation of home rule powers and functions under subsection (g) of Section 6 of Article VII of the Illinois Constitution." 50 ILCS 825/10.
In addition, concerning non-home rule units, the IRCPA provides that: "A unit of local government *** shall not enact, maintain, or enforce an ordinance or resolution that would have the effect of controlling the amount of rent charged for leasing private residential or commercial property." Id. § 5(a).
Section 10 applies here because the City is a home rule body. The Appellate Court found that the IRCPA's clear statutory language prohibits the City from seeking to "regulate or control" the amount of rent that a landlord may charge for residential property. The Appellate Court also determined that "the KCRO clearly regulates and controls the amount of rent a landlord may charge for residential property—no more than 102% of a qualified tenants' current annual rent."
Accordingly, the Appellate Court held that the IRCPA preempts the KCRO.
The Appellate Court rejected the City's argument that a landlord may avoid the rent control provision in the KCRO by offering the relocation assistance fee instead of renting the property to a qualified tenant. This argument failed because rent control does not force a landlord to rent property and under this interpretation no rent control measure would ever run afoul of the IRCPA's prohibition on rent control.
The Appellate Court next considered whether it was possible to sever the KCRO provision establishing the rent that a landlord may charge from the rest of the KCRO. When an ordinance has a severability clause, a reviewing court will "presume that the legislature intended the invalid provision of the ordinance or statute to be severable."
Here, the Chicago Municipal Code states that "[i]f any part, section, sentence, clause or application of this Code shall be adjudged invalid, void and of no effect for any reason, such decision shall not affect the validity of the remaining portions of the titles, chapters, sections or other provisions of this Code, or their application to other circumstances." Chicago Municipal Code § 1-4-200.
However, it is possible to overcome the presumption of severability "if the legislature would not have passed the statute without the" invalid provision. To determine this, the Appellate Court determines if eliminating the invalid provision would significantly undercut or alter the legislative reason for passing the act.
Absent the KCRO, Illinois permits a foreclosure purchaser to evict tenants from the foreclosed property after a 90-day notice period. The Chicago City Council designed the KCRO "to preserve, protect, maintain and improve rental property and prevent occupied buildings from becoming vacant after foreclosures." Chicago Municipal Code § 5-14-010. To achieve this purpose, the KCRO "incentivizes purchasers of foreclosed property to retain tenants by excusing purchasers from paying a $10,600 relocation fee if they extend the qualified tenant's lease and raise rent by no more than 102% of the previous year's rent."
The Appellate Court determined that if you removed any reference to rental rates, then the provision would state: "[T]he owner of a foreclosed rental property shall pay a one-time relocation assistance fee of $10,600 to a qualified tenant unless the owner offers such tenant the option to renew or extend the tenant's rental agreement."
This revision would allow a foreclosure purchaser to avoid the relocation fee "by offering to extend a qualified tenant's lease at a prohibitive rental rate, knowing that the tenant is likely to refuse." Displacing tenants would leave buildings vacant, "which is precisely what the KCRO was enacted to avoid."
As a result, the Appellate Court found that the relocation fee is inseparable from the rent control provision and that the Chicago City Council "would not have passed the KCRO without the rent limitation."
Therefore, the Appellate Court reversed the trial court's judgment holding that "the invalid portion of the KCRO is not severable from the remainder of the ordinance," and the Act preempts the KCRO.
The time for the appellees to petition the Illinois Supreme Court to review this decision has not yet expired, but for now the IRCPA would preempt the KRCO requirement that "an owner of a foreclosed property to offer qualified tenants either a $10,600 relocation fee or extend the tenant's lease with an annual rental rate that does not exceed 102% of their current rental rate."
Ralph T. Wutscher
Maurice Wutscher LLP
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