Illinois Security Deposit Rules for Small Rental Owners

Yes, an Illinois landlord with a single rental house has to follow a state security deposit statute. Since January 1, 2024, the Security Deposit Return Act applies to any lessor of residential real property with no minimum number of units, and it sets a 30-day deadline to send an itemized statement of damage and a 45-day deadline to return the full deposit when no statement goes out. The second statute, the Security Deposit Interest Act, is narrower. It reaches only lessors whose property has 25 or more units in a single building or in a complex of buildings on contiguous parcels.

If you own or are thinking about buying multi-family properties in Rockford, the first step in sorting out which act applies is a count of units. It explains what the text says and nothing more. It is not legal or tax advice, and an attorney or a tax professional confirms how a rule applies to a particular lease.

Which Landlords the Return Act Reaches Now

Start with the words of the statute. Section 1 of the Security Deposit Return Act speaks to "a lessor of residential real property who has received a security deposit from a lessee to secure the payment of rent or to compensate for damage to the leased premises." There is no phrase after "residential real property" that limits the rule to a building of a certain size. A landlord with one house, one duplex or one fourplex is a lessor of residential real property. So is the owner of a large complex.

That was not always the wording. Public Act 103-0224 amended Section 1 with an effective date of January 1, 2024. The act's own text shows the phrase ", containing 5 or more units," struck out of the opening sentence. Before that change, the sentence read "a lessor of residential real property, containing 5 or more units, who has received a security deposit." Anyone who learned the rule from older advice, or from an older lease form, may still carry the five-unit idea in their head. The current statute does not contain it. The same public act added the words that fix the starting date of the 30-day clock, which the next section covers.

Two other features of the Act matter for an owner who is reading it for the first time. Section 2 says the Act "takes effect January 1, 1974 and applies to leases executed on or after that date." So the statute is not new, and any lease an owner writes today falls under it. And the Act is about deposits given "to secure the payment of rent or to compensate for damage to the leased premises."

It is just as useful to know what the Return Act does not say. The text of the two deposit statutes contains no maximum deposit amount. It does not require a particular kind of bank account. It does not set a deadline for telling a tenant where the deposit is held. Those subjects are simply not in the two acts as published, and this guide will not invent a rule to fill the gap. If a lease or a property manager states a limit of that kind, it came from somewhere other than these two statutes, and the person who wrote it can name the source.

One more boundary. This guide covers the two state acts and the few state and federal rules listed below. It does not cover local ordinances. The city or village where a rental sits can have its own rules for landlords, and Rockford, for one, runs a rental registration program that our guide to Rockford Rental Registration and Inspection Rules walks through. Ask the municipal clerk whether anything local touches deposits before you finalize a lease. For the question of how many units a given building may legally hold in the first place, see our guide to Rockford Multifamily Zoning: Duplexes and Fourplexes.

The 30-Day and 45-Day Clocks, Step by Step

The Return Act does not tell a landlord to give the deposit back in so many days and leave it there. It sets up two paths. On the first path the landlord wants to keep some of the deposit as reimbursement for property damage. On the second the landlord sends nothing, and the whole deposit goes back.

On the first path, Section 1(a) says the lessor "may not withhold any part of that deposit as reimbursement for property damage" unless the lessor has furnished an itemized statement within 30 days. The 30 days run from the date the lessee vacated the premises or from the date the lessee's right of possession ends, whichever is later. That "whichever is later" wording is the piece the 2024 amendment added. Picture a tenant who hands over the keys on June 1. Counting thirty days from June 1 lands on July 1.

The statute names three ways to deliver the statement: personal delivery, postmarked mail to the tenant's last known address, or email to a verified email address that the tenant provided. The email option is limited to "a verified electronic mail address provided by the lessee."

The statement itself has required contents. It must describe "the damage allegedly caused to the leased premises" and give "the estimated or actual cost for repairing or replacing each item on that statement." It must attach the paid receipts for the repair or replacement, or copies of them. If the landlord did the work personally, the statute allows "the reasonable cost of his or her labor" to be included.

Sometimes the work has not been done by day 30. The statute covers that too. A landlord may give an estimated cost in the statement. Then the landlord has 30 more days, counted from the date the statement showing the estimate was furnished, to deliver the paid receipts or copies. Those receipts go by personal delivery or postmarked mail to the tenant's last known address or another address the tenant provided. A statement furnished on day 20 with an estimate, for example, starts a 30-day period for the receipts.

Section 1(b) deals with a different problem, a landlord who cannot produce receipts through no fault of their own. In that case the landlord produces three things: an itemized list of the cost of repair or replacement, any other evidence of cost the landlord has, and a verified statement from the lessor or the agent that gives the specific reasons the receipts cannot be produced and confirms that all other evidence has been provided. The phrase "through no fault of the lessor" is part of the rule.

The Act also has a rule for charges set in a written lease. If a written lease specifies the cost for cleaning, repair or replacement of any component of the premises, or of the building or common areas, the lessor may withhold the dollar amount the lease specifies. The statute limits this in two ways. The costs "shall be for damage beyond normal wear and tear and reasonable to restore the leased premises to the same condition as at the time the lease began." And the itemized statement must "reference the dollar amount specified in the written lease associated with the specific building component or amenity and include a copy of the applicable portion of the lease." Deductions for costs not named in the lease must follow the ordinary receipt rules above.

On the second path, the landlord sends no compliant statement. Section 1(a) says that if no statement and receipts are furnished as required, the lessor "shall return the security deposit in full within 45 days of the date that the lessee vacated the premises." The delivery is by personal delivery or postmarked mail to the last known address or another address the tenant provided. Forty-five days from a June 1 move-out lands on July 16. The 30-day statement deadline falls fifteen days before the 45-day full-return deadline.

The statute protects the landlord in one situation. If the tenant fails to provide a mailing address or an email address, the lessor "shall not be held liable for any damages or penalties as a result of the lessee's failure to provide an address."

Now the penalty. Section 1(c) applies "upon a finding by a circuit court" that the lessor refused to supply the itemized statement, or supplied it in bad faith, and also failed or refused to return the deposit due within the time limits. The lessor is then liable for "an amount equal to twice the amount of the security deposit due, together with court costs and reasonable attorney's fees." As plain arithmetic, a deposit of one thousand dollars would lead to a liability of two thousand dollars before costs and fees. That figure is only an illustration of the multiplication, not a prediction about any case. A court makes the finding.

Where would such a case go? Illinois Supreme Court Rule 281 defines a small claim as "a civil action based on either tort or contract for money not in excess of 10,000 dollars, exclusive of interest and costs." Whether a particular deposit dispute belongs in small claims is a question for the circuit clerk or an attorney. The Illinois Courts website keeps a small claims resource page with links to its self-help forms.

Interest, Sales, Foreclosures and the Other Rules That Touch a Deposit

The Security Deposit Interest Act is a separate statute with its own threshold. Section 1 applies to "a lessor of residential real property, containing 25 or more units in either a single building or a complex of buildings located on contiguous parcels of real property." The unit count is the whole test. A landlord with a 24-unit building is outside the Interest Act. A landlord with 25 units, in one building or across touching parcels, is inside it. A fourplex owner has no interest obligation under this Act, though the same owner is still covered by the Return Act.

For a landlord who is covered, the Act sets the rate by a formula. Interest is computed from the date of the deposit "at a rate equal to the interest paid by the largest commercial bank, as measured by total assets, having its main banking premises in this State on minimum deposit passbook savings accounts as of December 31 of the calendar year immediately preceding the inception of the rental agreement." The statute adds that this applies "on any deposit held by the lessor for more than 6 months." So a deposit held for six months or less does not earn the statutory interest.

Payment has a schedule. Section 2 says the lessor must, "within 30 days after the end of each 12 month rental period," pay the tenant any interest that has accumulated to an amount of five dollars or more. The payment may be cash or a credit applied to rent due. There is one exception, which is when the tenant is in default under the lease. When the tenancy ends, the lessor must pay all accumulated and unpaid interest "regardless of the amount." The penalty for a landlord who "willfully fails or refuses to pay" is, on a court's finding of willfulness, "an amount equal to the amount of the security deposit, together with court costs and reasonable attorneys fees." The Return Act's penalty is twice the deposit, and the Interest Act's is the deposit itself. Finally, Section 3 says the Interest Act "does not apply to any deposit made with respect to public housing."

Ownership changes are covered in the Return Act itself. Section 1.1 says that when a lessor who received a deposit or prepaid rent sells, leases, transfers or otherwise disposes of the property, other than to a lien holder, the transferee "shall be liable to that lessee for any security deposit, including statutory interest, or prepaid rent which the lessee has paid to the transferor." The seller does not walk away. The transferor "shall remain jointly and severally liable with the transferee." The sale contract and the closing statement are where a buyer and seller sort out how the deposit money itself changes hands.

Foreclosure has its own section. Section 1.2 applies when a lessor transfers actual possession of a deposit, including unpaid statutory interest, to the holder of a certificate of sale or deed, or to the purchaser of a foreclosed property under Article XV of the Code of Civil Procedure. That holder or purchaser becomes liable to the tenant for the transferred deposit. Within 21 days after the transfer, and after receiving the tenant's name and address, the holder or purchaser must post a written notice on the primary entrance of each dwelling unit saying it has acquired the deposit the tenant paid for that unit.

Two sections of the Landlord and Tenant Act also mention deposits. Section 5 covers a tenant or occupant charged during the lease term with a Class X felony committed on the premises. It lets the lessor void the lease on a judicial finding of probable cause or a grand jury indictment, and it is enforceable only when the parties signed a drug-free housing lease addendum or a substantially similar document. Subsection (b) of that section says "a person does not forfeit his or her security deposit or any part of the security deposit due solely to an eviction under the provisions of this Section." The deposit rules in the Return Act still apply to the move-out.

That tenant, and a family member living in the unit, may end the lease by giving the landlord a copy of the orders. Termination takes effect 30 days after the notice is delivered, or 30 days after the next rent due date when rent is paid monthly. The landlord must return any unearned advance rent and "must return any security deposit paid, except to the extent that there are actual damages or repairs to be paid from the security deposit as provided in the lease agreement."

A newer section of the Landlord and Tenant Act deserves a mention because it is coming. Section 35, "Rental fee transparency and limitations," carries a source note of P.A. 104-479, effective January 1, 2027. It requires every non-optional fee to appear on the first page of the lease, or the tenant is not liable for that fee. It lists fees a landlord cannot charge, among them a rental application fee over fifty dollars with a stated exception for third-party background checks, a fee for a lease modification or renewal, and a fee for an in-person walk-through at move-in or move-out. A security deposit is not on that list of banned fees. The section also says a landlord may not rename a fee to avoid it, and it exempts leases for dwelling units in owner-occupied premises containing six units or fewer. The section's effective date is January 1, 2027. A landlord who is not sure whether a particular charge counts as a fee, a deposit or something else should ask an attorney.

The last rule on this list is federal and has nothing to do with deadlines. It is about taxes. The IRS says in Publication 527 that a landlord should not include a security deposit in income when received "if you plan to return it to your tenant at the end of the lease." But "if you keep part or all of the security deposit during any year because your tenant doesn't live up to the terms of the lease, include the amount you keep in your income in that year." There is a catch in the labeling. The IRS also says "if an amount called a security deposit is to be used as a final payment of rent, it is advance rent," and advance rent is included in income when it is received. What the paperwork calls the money is not the test. Whether it is going to be returned or used is. A tax professional confirms how that applies to your return.

Bottom Line

The thresholds are the whole story, and they are easy to mix up. The Security Deposit Return Act now covers every lessor of residential real property, with no unit minimum since January 1, 2024. The Security Deposit Interest Act still starts at 25 units in one building or a complex on contiguous parcels. A landlord of a house, a duplex or a fourplex owes the Return Act's deadlines and not the Interest Act's interest. A landlord of 25 or more units owes both.

If you plan to keep any part of a deposit, the statement goes out inside 30 days of the later of the move-out date or the date the right of possession ends. It is itemized, it carries paid receipts or an estimate followed by receipts within another 30 days, and it travels by one of the three delivery methods the statute names. If you send nothing, the full deposit goes back inside 45 days. The cost of getting it wrong, on a court's finding, is twice the deposit plus costs and fees.

For a buyer, the practical takeaway is that a sale does not erase the tenants' deposits. Section 1.1 puts the deposit liability on the new owner and keeps the old owner liable too. If you are weighing a building with tenants in it, look at multi-family properties in Rockford with the unit count, the lease dates and the deposits in hand, and let the contract say who holds what at closing. For more Illinois guides on buying, owning and selling, the Illinois Real Estate Guide: Every Gambino Realtors Article lists them all.

Seven questions follow, each answered from the same statutes and sources used above.

Frequently Asked Questions