KMK Law Real Estate Blog

In January, Cincinnati City Council passed legislation imposing restrictions on residential landlords’ right to collect security deposits from their tenants. Specifically, the ordinance amends Chapter 871 of the Cincinnati Municipal Code to require that certain residential landlords give their tenants alternatives to the traditional security deposit (a payment equal to one month’s rent, due at lease signing). Those alternatives include (1) rental security insurance, (2) a reduced security deposit (no more than 50% of the monthly rent), and (3) payment of the full security deposit, but split-up into at least six smaller, monthly installments.

While the ordinance underwent several redrafts before being approved, the final text is still unclear (and possibly contradictory) in several respects, which could complicate a landlord’s efforts to achieve strict compliance with the new requirements. The following briefly summarizes those inconsistencies, and highlights a few other nuances that landlord’s will want to be aware of:

• Sec 871-9(a)(8) of the Municipal Code, a section added by the ordinance, starts off by saying “Upon a tenant’s request, all landlords  . . . shall offer to accept . . .”  That language creates the impression that a landlord’s obligation to offer the alternatives is not triggered unless or until a tenant specifically requests. However, Sec 871-9(a)(8)(D) and Sec 871-11 say something different: a landlord actually has an affirmative obligation to offer the alternatives (via the written notice the landlord is required to provide prior to lease signing), and then, if a tenant requests that the landlord accept one of the alternatives, the landlord is obligated to do so. The practical effect is that, at least for new leases, it’s not the tenant, but the landlord, who must initiate the dialogue regarding alternatives.

• There’s a possible inconsistency between Sec 871-9(a)(8) and Sec 871-11.  Sec 871-9(a)(8) suggests, in several places, that a landlord is not required to offer all three alternatives, and may choose to offer just one of them. For example, Sec 871-9(a)(8) requires a landlord to “offer to accept at least one of the options”; Sec 871-9(a)(8)(D) requires the landlord to give written notice of “available security deposit alternatives”; and Sec 871-9(a)(8)(E) says that if adequate rental security insurance is not available in Cincinnati, then the landlord can comply with the ordinance by “offering, at his or her option, one of the [other] rental security deposit alternatives.”  However, Sec 871-11 lays out the exact language a landlord must include in the written notice given to tenants, and that language specifically mentions all three alternatives (“If a security deposit is required, Tenant has the right to request and Landlord is required to accept one of the following three alternatives . . .”).  One way to resolve this inconsistency is to interpret the notice language to mean that the landlord must initially offer all three options (using the exact text required for the tenant notice), but while the tenant may request any of the three, the landlord can choose which one to accept. Of course, it doesn’t really make sense for a landlord to offer all three alternatives if its willing to accept only one of them, but that’s probably the safest way to ensure strict compliance with the ordinance.

• Sec 871-9(a)(8)(A)(iii) and Sec 871-9(a)(9), together, say that the rental security insurance coverage per claim can’t be any less, or any more, than the cash security deposit amount the landlord would otherwise require.

• Section 7 of the ordinance gives landlords until April 14, 2020 (90 days from January 15, 2020, the ordinance date) to start meeting the new requirements.

• Section 8 of the ordinance says that while the new requirements to not apply retroactively to leases already in effect, they do apply to renewals of existing leases. Presumably then, an existing tenant renewing its lease can request one of the alternatives, and the landlord (by April 14^th, at least) must be in a position to both accept an alternative and return the tenant’s original deposit. That the ordinance specifically confers this right to renewing tenants who’ve already paid traditional security deposits is interesting in light of the ordinance’s express purpose of “upfront cost relief.”

• The definition of “security deposit” in Sec 871-3(d), which existed prior to and was not modified by the ordinance, is broad and specifically contemplates the possibility of non-cash security deposits (“or other property however dominated”). But the ordinance seems to use the term “security deposit” in a more limited sense, referring to cash deposits only (see, for example, Sec 871-9(a)(8)(B), Sec 871-9(a)(8)(C), and Sec 871-9(a)(9)).

Notably, the ordinance does not impose any penalties on landlords who fail to comply with the new requirements, nor does it give tenants any remedies beyond those already in the Municipal Code. So under Sec 871-15, a tenant seeking to enforce its rights against a non-compliant landlord may either bring an action for injunctive relief or sue the landlord for damages (though it’s unclear what damages, if any, a prospective (non-renewing) tenant might be able to establish). It should also be noted that the definition of “tenant” in Sec 871-3 creates some uncertainty as to whether prospective tenants even have standing to sue. Because while the landlord’s refusal to accept a security deposit alternative would most likely occur prior to lease signing, a person is not a “tenant” under Chapter 871 until he or she is “an occupant of a rental unit.”