Publications: Changes to local laws affect real estate

Illinois real estate practitioners should be aware of recent developments to existing state and Chicago laws. An amendment to the Vacant Building Ordinance is causing a major headache for financial lenders in the city, while an amendment to the Illinois Radon Awareness Act increases environmental disclosure obligations for landlords.

Amendment to Chicago’s Vacant Building Ordinance

In July, the Chicago City Council passed an ordinance amending the Vacant Building Ordinance, Chapter 13-12 of the Municipal Code, expanding the definition of “owner” to include a mortgagee (or assignee or agent). The ordinance requires mortgagees to pay for maintenance and upkeep on vacant properties before the lender officially takes title and becomes the real owner, which some argue overturns long-standing principles of property law. Chicago’s new mayor, Rahm Emanuel, defends the controversial new ordinance saying “vacant properties often become a financial burden on the city,” with Chicago spending more than $15 million on vacant buildings last year alone. The city has taken an aggressive approach by passing the law and shifting the financial burden to the lender. Effective in July, a mortgagee is now required to cut the grass, shovel snow and deal with complaints tied to the property.

Chicago is not the first city to pass such a law. Los Angeles passed a city ordinance this year allowing for fines up to $100,000 to lenders and servicers of properties under foreclosure for failing to adequately preserve the mortgaged properties.

The Chicago ordinance was promoted by community groups such as Southsiders Organizing for Unity and Liberation (SOUL) and Action Now, among others. These groups argued that this ordinance will remedy situations where lenders initiate foreclosure proceedings on a property, wait until the occupants move out, fail to complete the foreclosure suit and then avoid legal accountability for neglecting ownership duties of maintaining such properties. Chicago aldermen agreed. When the lender is not held accountable for the maintenance of these vacant properties, the aldermen contend that they become severe sources of blight as the vacant properties can become a fire hazard and a magnet for crime.

The longevity of the ordinance is uncertain as the financial industry is casting doubt on the legality of the law. Lenders’ legal advisers predict that the ordinance will likely face a constitutional challenge on the grounds it violates lenders’ 14th Amendment right to equal protection, because the ordinance is overly broad and not narrowly tailored enough to meet a legitimate government interest without violating the rights of lenders who are listed as mortgagee on the property, but not the official owners of title. Some ambiguity also exists as to whether the city has the legal authority to enact this ordinance without enabling legislation first being passed at the state level. Powers in the home rule provisions of the Illinois Constitution may overcome the latter argument.

Another question remains as to the enforceability of the ordinance. It is unclear how the city will determine the status of the thousands of vacant homes in foreclosure proceedings and how the city will impose penalties on the lenders and its assignees and agents.

Under the new scope of the law, responsibilities of lenders include, but are not limited to: a) registration with the city within 30 days after a building has become vacant and register every six months if the property remains vacant; b) enclose and secure the vacant building and post a sign with lender’s contact information; c) lot maintenance such as removing waste and cutting the grass; d) exterior maintenance of the building such as keeping walls and windows free of holes and breaks and roofs maintained in weather-tight condition; e) interior maintenance of the building such as preserving plumbing fixtures with no leaking pipes and extermination of insects; and f) building security such as closing and securing all building openings with secure doors, glazed windows and commercial-quality security panels.

The penalty for violating the ordinance is a fine of not less than $500 and not more than $1,000 for each offense. Every day that a violation continues constitutes a separate and distinct offense.

Amendment to the Illinois Radon Awareness Act

A much less controversial law passed last month in Illinois, amending the Illinois Radon Awareness Act, 420 ILCS 46, to impose certain obligations on Illinois landlords in connection with radon testing in rental units. Radon is an indoor air pollutant, which is a colorless, odorless radioactive gas. It is estimated to be the second leading cause of lung cancer in human beings, behind cigarette smoking, and radon exposure may be associated with 7,000 to 30,000 lung cancer deaths in this country each year, according to a report from the Environmental Law Institute. Gloria Linnertz of Waterloo, Ill., said she believes her deceased husband’s lung cancer may have been caused by the high levels of radon in their home. After his death in 2008, she helped spearhead the passage of the act.

Pursuant to the existing act, radon notification pamphlets are required to be given to buyers when purchasing residential real estate in Illinois. The recent amendment to the act, effective Jan. 1, applies to dwelling units below the third story and above ground level where a written lease exists.

Under the amended law, if a landlord performs a radon test in a dwelling unit that indicates that a radon hazard exists in the unit, the landlord is obligated to provide written notification of the radon hazard to the current tenant of the unit and any prospective tenant. Likewise, if the tenant undertakes a radon test and provides written results to the landlord that indicate a radon hazard exists in the unit, the landlord must provide written notification of the hazard’s existence to any prospective tenant of that unit. After receiving such tenant notification, if the landlord conducts his own radon test and the results of such test indicate a radon hazard does not exist, the landlord is not required to disclose that a radon hazard exists in the dwelling unit.

Presumably, a tenant could break their lease if the radon level is above the Environmental Protection Agency’s standard and the landlord does nothing to cure the exposure to radon, although no specific language appears in the amendment. It seems unlikely that the tenant would have any other personal-injury causes of action or be awarded any other remedy. The law could lead to imposing obligations upon a landlord to notify his property insurance company if the radon level tested is abnormally high, which could create insurability issues.

Without any enforcement or penalty provisions, this law seems more intended to disseminate useful information than to impose enforcement or penalties for noncompliance. Hopefully, passage actually raises awareness about radon risks and Illinois residents test for radon in their homes. As Gloria Linnertz said, a $12, easy-to-use radon testing kit purchased through the American Lung Association may have saved her husband’s life.

Reprinted with permission from Law Bulletin Publishing Company.