As I See It: “Fair Notice” to City Hall: New Law Filled with Unintended Consequences

 

Mike Glasser, RPBG President
Summer, 2020

 

For years, both housing providers and tenants understood that either party could terminate a month-to-month lease with no less than 30 days’ notice, effective on the last day of the month. 

To cancel a lease ending on, say, September 30, one of the parties would need to notify the other party on or before August 31st.

Citing the shortage of affordable apartments in Chicago, tenant rights advocates convinced City officials that the longstanding thirty-day notice requirement was insufficient for tenants. As a result, the City Council, at the behest of Mayor Lori Lightfoot's Administration, recently enacted the so-called “Fair Notice Ordinance,” a law that increases the time in which Chicago housing providers must notify tenants when they decide not to renew their lease. The law increases the notice requirement from 30 days for all tenants to 60 days for tenants who have been in their apartment from six months to three years, and 120 days for tenants who have resided in their apartment for more than three years.

The same notice requirement applies to rent increases for the upcoming lease term, a change that was added to the Fair Notice proposal at the last-minute just before the City Council Housing Committee voted on the measure. I find it more than a little ironic that the notice provision for rent increases was adopted with no notice to housing providers or industry representatives, and very little notice to most members of the committee.

The notice requirements were added as an amendment to the Residential Landlord and Tenant Ordinance (RLTO), which generally does not apply to owner-occupied buildings of up to six units. The Fair Notice law, however, carries a carve out to this exception. The new requirements apply to all rental housing units in the city.

Do you own a rental condo or reside in a two-flat and rent the upstairs? You must follow these new notice rules.

It could have been far worse. Tenant rights advocates wanted 180 days’ notice, and the Lightfoot Administration initially proposed that housing providers pay $2,500 to tenants whose leases they did not renew under certain circumstances. After those of us advocating on behalf of the apartment industry voiced our strong objections to the relocation assistance, the Administration took the proposal off the table – at least for the time being.

Realizing that 30 days’ notice may not be sufficient for some tenants, industry advocates let it be known we could live with 60 days’ notice. Though we were able to win this 60-day compromise for shorter-term tenants, the Administration pushed through the 120-day notice for tenants who have been in occupancy for more than three years.

I expressed my concerns about the 120-day notice for non-renewal to one key City official. I pointed out that a housing provider's decision to not renew a lease is never arbitrary.

We like good tenants and it's a great business practice to keep them. When we decide not to renew a lease, we always have a reason, and it's usually because the tenant is violating the rules, often making life difficult for other tenants in the building and the surrounding community. In almost every case, it's much easier to simply not renew their lease than engage in the burdensome and dysfunctional eviction process, which is expensive for the housing provider and ruins the tenant's credit rating.

The City official responded: “But clearly, if a tenant is with you for more than three years, you know and trust them.”

I agreed this is usually the case, but circumstances sometimes change and occasionally a tenant with a sterling record of paying rent on time and following the rules suddenly begins to cause problems. I explained to the City official our real life experiences as housing providers and how longtime tenants sometimes take in a troublesome new roommate or partner, or how children who are under 12 years of age when their family first moves into an apartment can offer new challenges when they reach adolescence. If these tenants begin to bring trouble to a building, we building owners need every tool available to handle the situation, including the flexible option of not renewing a lease with less than 120 days’ notice.

I also explained to the City official that when we notify a tenant we are not renewing their lease, they often stop paying their rent. When the notice is thirty days, it means one month's lost rent, a relatively small cost. But when the notice is 120 days, that one month of lost rent translates into four months of lost rent--a staggering loss, especially for smaller owners.

I also challenged the City official's assumption that a tenant meaningfully benefits from a 120-day notice of non-renewal. Rental units are almost never available four months out. If a tenant receives word on July 31 of a non-renewal, the practical reality is few, if any, housing providers will be able to guarantee an available unit for a December 1 move-in.

Housing providers are focused on the immediate future and rarely have any idea what units will be available in four months’ time, let alone how much rent they will require. In the interim, we may receive a tax bill that shows, say, a 20 percent increase and we would want to adjust our rents to absorb at least some of that increase.

I also pointed out the inconsistency between the 120-day notice for non-renewal and the RLTO prohibition against housing providers requiring a tenant to sign a new lease more than 90 days from the end of their current lease. This inconsistency between the two provisions makes it awkward and confusing for all involved.

Accordingly, I urged the City official to consider reducing the 120-day notice to a more realistic 90 days. Unfortunately, my practical compromise solution fell on deaf ears.

I'm especially concerned about the effect on small owners of this complicated new ordinance. Larger owners, many with professional property managers, will use sophisticated programs and hire staff to distinguish between newer residents and those who have been around for over three years, and issue the appropriate notifications.

Smaller owners are often a different breed. Many have other full-time jobs. They are putting sweat equity into their property, focused on fixing toilets, patching roofs, understanding complicated insurance questions, and searching for comps to protest their property tax bill. Will they remember to notify their tenants four months out? Will they even know of the requirement?

More likely, a six-flat owner, calculating that they need to impose a $25 rent increase to help absorb rising operating costs, will approach their long-term tenant 60 days prior to their lease expiration, informing them of the increase.

The tenant’s response: “I’m happy to renew my lease, but if you want to increase my rent, you should have told me two months ago. If you don’t like it, speak to my lawyer, and if you fight this further, my lawyer will take you to court and require you to pay his legal fees. And don’t even think about not renewing my lease. If you want to do that, you should have notified me 60 days ago as well.”

If you believe the Fair Notice Ordinance is the last of the burdensome requirements coming from City Hall, you are mistaken. Certain Socialist and self-proclaimed progressive elected officials say they have only just begun.

Various levels of government have enacted new legislation on the backs of hard-working, industrious housing providers who operate on small margins, confusing and burdening us with countless new government mandates, all replete with unintended consequences. (Read “The List,” included with this Newsletter.)

Next up: the City Council’s Housing Committee will consider the "Just Cause Eviction Ordinance." This over-the-top ordinance goes much further than Fair Notice, essentially offering tenants a permanent entitlement to their apartment. Under the terms of this ordinance, a tenant will enjoy an absolute right to have their lease renewed so long as they are complying with the terms of their current lease. If the housing provider wishes to recover their apartment (say, for a family member), their only recourse is to pay the tenant a $10,600 “relocation fee.”

This assault on housing providers under the guise of "protecting tenants” will only serve to discourage investment in Chicago's neighborhoods, especially on the city's South and West Sides that are crying out for more investment.

With each new legal mandate and tax and fee increase, our elected officials at the City, County and State level are shattering the aspirations of so many young entrepreneurs. This includes many longtime Chicago residents of all races and ethnic backgrounds, who seek to capture a piece of the American Dream, create inter-generational wealth, and invest in Chicago’s neighborhoods, providing the city’s residents with safe, secure and affordable housing.

Finally, these additional burdens are passed into law at the very moment we are all struggling to keep our buildings afloat during a worldwide pandemic, with all the economic uncertainty that comes with it.

It's past time for City Hall to get its priorities straight. Let’s prioritize coming up with incentives to increase the supply of housing, especially in our economically challenged neighborhoods. More housing means more affordable housing for everyone. Instead, City Hall prioritizes adding endless layers of burdensome restrictions to long-established and perfectly fair and workable business practices.

Let me offer City Hall some “fair notice” from the community of housing providers. Our patience is growing thin.