Illinois Leasing Agent Practice Exam

Under what condition is a landlord required to pay interest on security deposits?

1. Five residential units or more

2. Ten residential units or more

3. 25 residential units or more

4. No condition required

The correct answer is: 25 residential units or more

A landlord is required to pay interest on security deposits when managing 25 residential units or more. This rule is rooted in the Illinois Security Deposit Interest Act, which aims to protect tenants' rights. When a landlord holds a security deposit, it is not merely a means to secure a tenant's commitment; it is also considered a form of investment for the landlord. By paying interest, the law ensures that the tenant receives a fair return on their deposit, acknowledging the time the money is held and giving a financial incentive for landlords to manage these funds responsibly. In comparison, properties with fewer than 25 units do not incur the same legal obligation for interest payments, allowing smaller landlords to avoid this additional requirement, which could contribute to an administrative burden. Thus, the provision establishes a clear threshold to ensure fairness for tenants in larger rental situations while streamlining operations for smaller landlords. This balance helps create a fair rental market conducive to both tenants and landlords.