Chicago can force landlords to pay tenants $10K for ‘relocation assistance’

By Jonathan Bilyk | Legal Newsline
The Center Square

(Legal Newsline) – Nothing in the U.S. Constitution prevents the city of Chicago from forcing landlords who purchase apartment buildings out of foreclosure to pay $10,000 in “relocation assistance” to tenants who don’t want to renew their lease, a federal appeals court has ruled.

On July 22, a three-judge panel of the U.S. Seventh Circuit Court of Appeals rejected a challenge to that provision in Chicago’s so-called “Keep Chicago Renting” ordinance, saying the money the city has ordered landlords to pay to tenants is merely a kind of economic regulation on the landlord-tenant relationship, and can’t be considered an unconstitutional “taking” of the landlord’s property by the city government.

Enacted in 2013, the city ordinance laid down rules governing the responsibilities of landlords who purchase foreclosed apartment buildings or other residential rental properties.

However, in 2021, the city government revised the ordinance to added costly new rules, requiring new owners of formerly foreclosed rental properties to both offer new 12-month lease to all current tenants, and, if those leases are declined, pay those departing tenants $10,600 each for “relocation assistance.”

If they don’t comply with the ordinance, tenants can sue and secure court orders forcing them to pay double that amount, or $21,200 per tenant.

The ordinance does not require tenants to prove they actually used any of the money to fund a security deposit on a new apartment or in any way to help find a new rental home for them or their family. Tenants could be free to simply pocket the money.

That particular provision was challenged in federal court in 2024 by a residential rental management company, identified as BBLI Edison LLC.

According to court documents, BBLI Edison is considered to be the owner of an apartment building at 5200 N. Sheridan Road, at the corner of Sheridan and West Foster Avenue in Chicago’s Edgewater neighborhood.

BBLI acquired the property in February 2024.

While BBLI is registered to an address in Springfield, managers of the company include executives and other representatives affiliated with Boston-based corporate real estate firm, Berkshire Residential Investments.

BBLI’s lawsuit asserted the Chicago ordinance amounted to a violation of the Fifth Amendment’s prohibition on government takings of property without just compensation. Specificially, they asserted the ordinance was an unconstitutional infringement on their rights to manage and lease the property, by forcing them to pay potentially millions of dollars to other people or risk penalties from the city.

At their 5200 Sheridan property, BBLI inherited 220 tenants. If all of them declined to renew their leases, the company would be on the hook for more than $2.3 million in payments to the tenants.

According to court documents, five tenants ultimately opted not to renew, and BBLI was forced to pay $53,000 in “relocation assistance” under the ordinance.

In Chicago federal district court, U.S. District Judge Mary Rowland ruled in favor of the city, finding the city’s tenant payment demands to be constitutional.

On appeal, the three-judge panel unanimously agreed. The opinion was authored by Seventh Circuit Chief Judge Michael Scudder. Seventh Circuit judges Amy J. St. Eve and Candace Jackson-Akiwumi concurred in the decision.

In the ruling, Scudder conceded “BBLI’s position has something to it.”

He noted the U.S. Supreme Court in recent decades and years has consistently broadened the definition of unconstitutional takings. Particularly in the 2013 decision known as Koontz v. St Johns River Water Management District, the Supreme Court “endorsed the view” that when the government orders property owners to pay certain amounts as a condition of owning their property, then the court must examine if those forced payments amount to unconstitutional property takings.

“Read broadly, this suggests that the (Chicago) Ordinance may amount to a physical taking because it directs the owners of particular pieces of property — newly foreclosed buildings — to make specific monetary payments to their tenants,” Scudder wrote.

But Scudder said applying that reasoning to this case would be reading the Koontz decision too “expansively,” given key differences in the case. Specifically, in Koontz, the government refused to grant permits to a landowner “unless he reduced the size of his proposed development or paid contractors to improve some nearby government-owned land.”

However, in this case, the Chicago ordinance doesn’t single out any particular landlords or forbid landlords from operating their property. Rather, Scudder said, the Chicago ordinance places another condition on the landlord-tenant relationship, which courts have found is a legitimate subject of regulation by city and other governments.

“And those precedents are clear that ‘statutes regulating the economic relations of landlords and tenants are not per se takings,'” Scudder wrote.

And Scudder and his colleagues further rejected BBLI’s attempt to argue the ordinance is even an unconstitutional “partial regulatory taking, or use restriction, that overburdens its ability to use the property.”

“… The City has an interest in keeping its residents housed,” Scudder wrote. “That is the purpose the Ordinance seeks to serve, providing it with an essential nexus to the government’s interest. And BBLI makes no effort to show that any relocation assistance fee is disproportional to the impact on Chicago’s interest.

“It provides no estimates for actual moving costs, nor does it explain how it would need to adjust its lease rates to prevent tenants from taking the fee. We therefore are unable to find an unconstitutional condition on these facts,” Scudder wrote.

BBLI was represented in the action by attorney Cara M. Houck, of the firm of Holland & Knight, of Chicago.