What can I do if my landlord doesn’t return my security deposit? My landlord sold the unit after condo deconversion but never gave the deposit back to me.

Q: I am a tenant in a building that was recently deconverted from condos to apartments. Prior to the deconversion, I had rented the condo from the same owner for many years. 

The sale of the condo building occurred late last year. In conjunction with the sale, all owners that were renting their units were required to return all security deposits and interest back to their tenants prior to the closing. I never received my security deposit back. 

I contacted the law firm handling the sale prior to the closing and told them to have the money paid to me from the closing. The law firm was falsely led by the owner to believe that he was going to pay me the day before the closing. 

As part of the sale, the lease I had with the condo owner was transferred to the new owner. The new owner is a large real estate investment company. I am aware that as an Illinois resident, I can file a lawsuit against the previous condo owner for the amount of my security deposit plus penalties. Is the lawsuit my only recourse, or is it now the responsibility of the new owner of the apartment complex to return my security deposit to me?

What Can I Do If My Landlord Doesn’t Return My Security Deposit?

A: Well, the fact that you didn’t get your security deposit returned to you and are now reduced to chasing the old or new owners in court doesn’t seem right to us. But let’s start at the beginning, wherein parts of the country where home prices haven’t really recovered, condo deconversions have become quite popular.

In some areas of the country, including Chicago, condominium buildings are going through a phase in which they are changing from condos back to apartment rental buildings owned by a landlord. 

A short course on the way condo deconversions work: When condo prices stagnate or fall in the open market, a landlord may look at the building and do some math on what value the units would bring as rental properties. If the value of the building as a rental property outstrips the value of the property as a condo property, a landlord might make each owner in the property an offer (which is typically far above market prices) to get the owner to sell. Typically, the landlord needs only a certain percentage of owners to say yes in order to force all the owners to sell, usually around 75 percent.

Some 20 years ago, many apartment buildings were turned “condo” by developers who sought to profit from a skyrocketing condo market. In strong real estate markets, you likely won’t see condominium deconversions. That is because the rising prices of condominiums makes the deconversion process too expensive for rental building owners.

The law firm that represented all of the owners has a duty to you to represent those owners fairly and diligently. You were not an owner, but a tenant in a unit sold by one of those owners. The law firm likely does not have any duty to you in their representation of the owner that sold the unit. 

What Happens to My Lease When My Landlord Sells the Unit?

Your lease governs your relationship with the old owner and the new owner. We presume that your lease states that you put down an amount as a security deposit under the lease. We also assume that the buyer would want proof that the security deposit was returned to you at or prior to the closing. Now, you say that you never got your security deposit back. Between you and your new landlord, your lease would still provide for the deposit of a security deposit.

Unlike some commercial leases, we think that the new landlord probably has assumed the duties of the old landlord and has the continued obligation to return to you the security deposit to you. Have you contacted the new landlord to tell them that you never received the security deposit? The new landlord would likely have wanted to see a document signed by you acknowledging the return of the security deposit. You didn’t sign it as you didn’t get the money back, so if the new landlord received a signed document, the question to ask is, who signed that document on your behalf?

What If State Law Requires Interest to be Paid on My Security Deposit?

You mentioned that your state law requires interest to be paid on your security deposit. Some municipalities have ordinances that are protective of tenants and require landlords to return the security deposit to tenants within a certain number of days following the end of the lease. Those same ordinances also might require landlords to pay interest on the security deposit. In many cases, those ordinances penalize landlords for their failure to pay interest or return security deposits as required under the ordinances.

Those penalties can be severe. In Chicago and in some of its surrounding suburbs, the penalty can be up to double the amount of the security deposit. Those same ordinances frequently make the old landlord and the new landlord jointly liable for any violations under the ordinance for failure to return the security deposit or pay interest on the security deposit. Not only that, the tenant can recover attorneys’ fees in any action against the landlord.

We’d suggest you talk to your new landlord and see what they know after you explain to them that you never received a return of the security deposit. By the way, you should probably communicate with your old landlord and new landlord in writing to keep a record of the conversations. Interest on your security deposit is probably due on an annual basis on the anniversary of your lease. 

What Can I Expect from My New Landlord?

While some landlords may try to wiggle their way out of paying you, others will understand and make sure they paper their file showing you got paid the interest you were owed and the entire amount of the security deposit. We’d expect your new landlord to simply send you a check for the interest and security deposit you’re owed rather than face problems down the line. The new landlord can seek what they can from your old landlord under the documents that they signed at their sale.

And, remember, if your municipality or state does not have a law or ordinance regulating security deposits or interest on security deposits, you may only have the remedies set forth under your lease. That remedy may be to sue for your security deposit and nothing more and you may not have the right to get your attorneys’ fees. For more information, talk to an attorney that focuses their practice on landlord-tenant issues.

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