Security Deposits – The 5 Key Questions for Chicago

If you own a property in Illinois, one of the first things on your mind will be protecting it from damage. As a matter of fact, most Illinois landlords take a security deposit to protect themselves from damages the tenant might cause. Seeing that a new landlord might have a few questions about how to do this right, I decided to make a post about what the law requires.

How much should I take?

Illinois is one of the few states in the country that does not set a maximum for a security deposit! Although a landlord can charge any amount she wants, that is certainly not advisable. Housing is a business, and you have to make sure to consider your property against your competition when you set the amount. We find that most tenants are agreeable to anything under two months’ rent placed on deposit.

How much can a Chicago Security Deposit be? (1.5x Rent!) and Can I Charge a Cleaning Fee Instead?

In Cook County, the maximum security deposit is 150% of the first month’s rent. Landlords cannot collect more than 150% of the monthly rent. Attempts to circumvent this rule by labeling a charge as something other than a deposit are also prohibited. By this, we mean that it’s illegal to call it a cleaning fee, a move-in fee, a renter’s inspection fee, a non-refundable application fee… etc.

Tenants may choose to pay any amount between 100% and 150% of the monthly rent in full across six equal installments, as long as it is paid no later than six months after the lease’s effective date. If landlords collect an excessive deposit or do not permit tenants to pay any deposit exceeding 100% of monthly rent in installments, the tenant can claim a penalty of two times the deposit, along with attorney’s fees and case costs.

How do I keep the security deposit?

Undeniably, this is the hard part. The Security Deposit Return Act has some very strict rules, and even stricter penalties. While I think I could do an article on every single aspect of this law, here are some quick pointers:

  • Keep it in a separate account away from your operating budget.
  • Hold it in an interest-bearing bank account.
  • Tell your tenant which bank holds the deposit.
  • Make sure to pay your tenant credit for the interest every 12 months. (Presently 0.01% for 2023)
  • Keep an itemized receipt of anything you pay from the account.

What are the Cook County Rules for Holding Security Deposits?

Landlords in Chicago must provide tenants with a receipt for any security deposit paid. It must include the owner’s name, the date it was received, and a description of the rental unit. The person who accepts the deposit (landlord) must sign that receipt. The landlord has the option to do electronic signatures if the tenant pays through electronic funds transfer.

Landlords may accept payment for the first month’s rent and the security deposit in one transaction. But, then the landlord must transfer the money to a separate account within five days. You must hold all security deposits in a federally insured interest-bearing account at a financial institution located in Illinois. You cannot mix them into regular operating accounts or other assets.

In the rental agreement, the landlord must specify the financial institution where the security deposit is kept. If there is no written agreement, the landlord must provide this information to the tenant in writing within 14 days of receipt. If you transfer the money to another financial institution, the tenant must be notified within 14 days of the transfer, including the name and address of the new institution. We’ve personally had three clients sued over this in the last year.

Get the Answers to How to Hold Your Security Deposit

Tell Me How to Help You Maintain your Investment

How long can I hold onto it?

After your tenant’s lease ends, you, the landlord, have only 45 days to return the security deposit. However, the landlord has only 7 days if the property became uninhabitable. As a matter of fact, if you break the law here, this is where you will get the biggest penalties. Don’t hold on — move on!

What can I charge to my tenant?

For starters, you cannot deduct damages for ordinary wear and tear. In other words, you can deduct any damages beyond ordinary wear and tear! Of course, as I said earlier, keep that itemized receipt for any expenses you pay from the account.

Moreover, you have only 30 days to prepare an estimate of the costs and expenses, and give it to your tenant. You can hold the security deposit for a little longer, to the 45 days we talked about earlier. However, you’ll want to provide it to the tenant to take any deductions. If you don’t share it with the tenant, you’re prohibited from taking any deductions from your tenant’s security deposit.

You must give your tenant the complete receipts for any charges you made against the security deposit. They’re due within 60 days after the tenant moves out!

Are there Chicago Specific Rules for Security Deposit Withholding?

Before you can deduct any expenses for damages from the security deposit, landlords must provide tenants with an itemized statement of damages. This must be provided within 30 days of the tenant vacating the rental unit.

Landlords must return all security deposits and required interest, minus unpaid rent and expenses for damages, within 45 days of the tenant vacating the unit. If a tenant terminates a rental agreement due to a fire, landlords must return all security deposits and required interest, minus unpaid rent and expenses for damages, within seven days of receiving notice.

If the Chicago landlord sells the property, the successor landlord is responsible for any security deposit or prepaid rent paid to the original landlord. You should collect that security deposit at the closing table and request it in attorney review. The successor landlord must notify the tenant, in writing, within 14 days of the transfer and the original landlord remains liable until the deposit or prepaid rent is transferred and proper notice is given to the tenant.

If a landlord fails to comply with the specified security deposit requirements, the tenant can claim damages in an amount equal to two times the deposit plus interest.

So, what happens if I don’t promptly return the deposit?

Certainly, you want to comply with these laws. They have real teeth. The following are the penalties for failing to comply, and I think nothing will show you how severe they are better than reading them yourself!

  • DOUBLE the damages caused by holding onto the security deposit.
  • The return of the whole amount.
  • ALL attorneys fees and costs the tenant suffered from suing to get it back.

As an attorney, I can assure you that any attorney will take a case that pays for one’s fees. I’ll also take any case that’s going to get me a new client for every single occupant in your building. Illinois is a very tenant-friendly state, and the only way to protect yourself under this law is to follow it closely.


In order to avoid the harsh penalties of Illinois Security Deposit Law, make sure you keep the account separate, pay interest on it, keep your receipts, and return it quickly. Once your system is put into place, your property will be well managed, cash flow appropriately, and above all, protect you from anything in the future.


Can the landlord charge a non-refundable security deposit?

Yes, the landlord can charge a non-refundable deposit, but it must be for a specific reason, such as a pet deposit or a cleaning fee. You can’t charge a non-specific fee that takes the place of a big security deposit.

Can the landlord increase the security deposit during the lease term?

No, the landlord cannot increase the security deposit during the lease term. You’ll have to wait to sign a new lease.

Can the tenant use the security deposit to pay the last month’s rent in Chicago?

No, the tenant cannot use the security deposit to pay the last month’s rent. Almost every tenant will offer to do this. It’s a terrible idea to accept that. The payment is meant to protect the landlord against any damages during the lease term. If the tenant uses it on unpaid rent, then you have nothing to pay for repairs.

Can the tenant dispute the deductions made from the security deposit?

Yes, the tenant can dispute the deductions made from the security deposit if they believe they are unreasonable. The tenant can send a demand letter to the landlord requesting the return of the disputed amount. If the dispute cannot be resolved, the tenant can take legal action against the landlord.

Can the landlord deduct unpaid Utilities like Water Bills or Gas?

Absolutely. That’s part of the necessary business expenses of the rental property. As long as they were tenant paid utilities under the lease, they can be deducted.

What about Rhino or Security Deposit Insurance?

As a landlord, Security Deposit Insurance offers a useful alternative to traditional cash downpayment. With these kinds of products, you can avoid the hassle of managing security deposits and provide your tenants with an affordable solution that helps them maintain control of their cash.

Security Deposit Insurance replaces upfront deposits with a small fee that tenants pay, and provides a policy that secures the home in case of damages or unpaid fees. This not only benefits your tenants but also protects your investment as a property owner. These are considered non-refundable fees and will need a special waiver addenda from your attorney.

Get the Answers to How to Hold Your Security Deposit

Tell Me How to Help You Maintain your Investment