When combined, Zillow and its subsidiaries capture over 50% of renter online-search traffic. With more listings than any other internet listing service (ILS), it is the go-to website to list and search for houses and apartments. Facilitating the apartment search process for over half of the country’s renters and landlords comes with a tremendous amount of responsibility and means that one seemingly minor error can have a major impact on its customers.
For landlords who don’t care to draft their own lease, Zillow offers a convenient and accessible lease template for landlords to use, which Zillow claims is drafted “by Zillow, together with local law firms.” Both new and seasoned landlords frequently take advantage of their offering not only for convenience, but also because they assume it to be fully compliant with its respective city, thus eliminating any potential risks. Who would doubt the integrity of a lease recommended by an $9.5 billion company and all of the attorneys that prepared it?
The Risks of Non-Compliant Leases
Your leases are arguably the most important element of your property portfolio. Without a compliant lease, both the landlord and the tenant carry risks they’re often unaware of. Common lease mistakes include:
- Incomplete or outdated lease terms
- Inadequate property descriptions
- Misunderstanding renewal periods
- Neglecting sublet clauses and termination penalties
- Failure to clearly assign responsibilities (utilities, maintenance, etc.)
- Failure to comply with city security deposit requirements
It’s that last bullet point that leads us to the start of our landlord story. In order to respect the privacy of all parties, we will not be listing any names or addresses.
Earlier this summer, a Chicago landlord listed their former house for rent at over $6,000. This home is gorgeous! A young couple sees it on Zillow, tours it, signs a Zillow-provided lease and moves in. The landlord just locked in a 12-month lease at a great rate and the couple finally found the home of their dreams. Everyone wins!
Fast-forward a few months later, the couple decides to go their separate ways and vacate the home (alleging their pet’s anxiety was not compatible with the space). When something like this happens, it’s common for changes to be made to the original lease. Most often, one of the following actions is taken:
- One tenant is removed from the lease, while the other assumes full responsibility.
- The tenants collectively break their lease and pay a penalty.
- The tenants seek alternatives such as subletting or reletting.
This couple had a different idea. Instead of taking one of the actions above, they got out their magnifying glass and searched for loopholes, which they found.
Let’s zoom out to contextualize the situation. In Chicago, landlords can either take a move-in fee or a security deposit to protect their properties against damages caused by tenants. Because of the strict laws surrounding security deposits in Chicago, many landlords choose to collect non-refundable move-in fees. This is what The Apartment Source’s management division – TAS Management – collects from their tenants.
Security deposits are governed by the Chicago Residential Landlord and Tenant Ordinance (commonly referred to as RLTO). According to the RLTO, even if the landlord does not collect a security deposit, they’re still legally required to fill out and attach an updated Security Deposit Summary to the lease. Remember the key word here, “updated.”
Back to the story. The landlord, diligent as they are, completed this required summary as provided in the Zillow lease, and did not collect a security deposit from the tenants. They should be covered, right? Not quite.
Zillow’s lease – which they encourage landlords to use – includes a Security Deposit Summary from 2022. Because the lease was executed in 2023, the summary is outdated, therefore the lease is invalid (despite the interest rate provisions being current). Per the landlord’s comment, as a result of this, the tenant was entitled to terminate the lease immediately (which they did, one day before their rent was due), plus damages in the amount of $100.00 and attorney’s fees.
That’s right, the largest online real estate platform in the U.S., on which millions of renters and landlords rely, provided a lease that allows tenants to vacate the property for just $100.
This is a problem that carries a substantial amount of risk for landlords all across Chicago. It is entirely possible that every landlord in the city who used a Zillow lease in 2023 is at risk of losing their tenants at a moment’s notice.
What could this mean for the Chicago real estate market? What happens if tenants are made aware of this before landlords are able to correct their mistakes? Time will tell.
In the meantime, even if you didn’t use a Zillow lease, it’s important that you re-read your lease to check for costly errors.
*If you did use a Zillow lease, contact your attorney as soon as possible to talk about how you can remedy the situation.
Avoiding and Mitigating Future Risks
As a private landlord who is not interested in using an online lease template, we recommend taking two alternative routes. Either contact your attorney to draft a lease, or work with a professional like The Apartment Source to receive an award-winning full-service leasing solution. Even if you already have a prospective tenant at the one-yard line and just want us to process the application, we offer our processing service for only $150; just a little bit cheaper than losing a tenant in the middle of the slow season.
There’s no question that what happened in this story was the result of an unusually aggressive effort to terminate a lease by two motivated tenants, therefore amplified to an extreme. Although it may not get this messy for you, we fear that this could be the first of many more instances of landlords losing tenants. The goal of this blog was not to scare you, but to make you hyper aware of the risks of using a non-compliant lease. The Apartment Source is a part of a professional association (C.A.R.) that lobbies for accountability in situations like this, so these types of stories are important for us to hear.
Going forward, we’re going to continue to tell this story with the hopes that more landlords are protected. Feel free to re-share this story to anyone and everyone who you feel would benefit from being aware of this significant risk. As always, if you have any questions regarding leasing, sales, redevelopment or property management, contact us anytime.
*The general information that The Apartment Source provides about Chicago landlord-tenant law is not intended as legal advice. While The Apartment Source aims to provide accurate information, the law is subject to change, and The Apartment Source is not a law firm or provider of legal services. Questions about your particular leasing situation should be directed to a lawyer.