Issue Overview
On September 18, the Chicago City Council approved a pilot program that would increase the demolition surcharge fee and establish a tenant “right of first refusal” for the neighborhoods of Avondale, Hermosa, Humbolt Park, Lower West Side (Pilsen), West Town and Logan Square. The ordinance was sponsored by aldermen representing those neighborhoods. The sponsors’ goals included “protecting naturally occurring affordable housing” from teardowns, decreasing “gentrification” and lowering property taxes for homeowners. It will be effective on or before October 9, 2024.
Despite REALTOR® engagement and direct lobbying of aldermen, this legislation became an issue of ‘Aldermanic Prerogative,’ a long-standing custom in Chicago City Council that each alderman dictates zoning decisions within their ward(s). Aldermanic Prerogative often results in near-unanimous votes (and this ordinance passed 44-3). Still, the rights of property owners, new regulations on property sales and the diminishing value of properties in this pilot zone are of primary concern to the association. We remain engaged on this issue even after its passage.
Legislative Outlook
Key details of this ordinance include:
- Demolition surcharge quadrupled as part of a “pilot program”
- The fee for demolition within the pilot zone will increase from $15,000 to $60,000 for a detached house, townhouse or two flat.
- For a coach house or multiunit residential building, the fee will increase from $5,000 to $20,000 per dwelling unit for the demolition. Affordable housing demolition plans are no longer exempt under this ordinance.
- The demolition surcharge pilot program shall be in effect through December 31, 2029
- Sellers of all residential rental property (including one unit) must adhere to new rules and notice requirements
- Prior to listing a rental property for sale, the owner must provide a “notice to sell” to the Department of Housing and to the tenant association, or to each tenant. The notice must be no less than 60 days prior to listing for five or more dwelling units. For four or fewer dwelling units, 30 days notice prior to listing is required.
- The Department of Housing will provide a form and the “notice to sell” must contain specific information including the proposed asking price. The owner shall also post a notice of intent to sell at all public entrances to the property (that form will also be provided by DOH).
- If the owner receives an offer from a third-party, the owner shall provide a written notice to the DOH, tenant association or to each tenant in the rental property. The notice of sale must include an executed duplicate original of the third-party purchase agreement and make available specific details about the property including the most recent rent roll, list of vacant apartments, income and expense report for the 12 month prior to the notice and any other information the Housing Commissioner may specify by rule.
- Tenants’ first right to purchase the building before a third-party (‘Right of First Refusal’)
- Tenants in buildings with five or more dwelling units have a period of 90 days from receipt of ‘notice to sell’ to form a union to exercise their “right of first refusal.” Tenants of a rental property consisting of four or three units shall have a period of 30 calendar days of notice to form a tenant association. For one or two dwelling units, the tenants have 15 calendar days to inform the owner of its intent to exercise its right of first refusal.
- For tenants exercising the right of first refusal, written notice must be provided to the owner. Terms and conditions may be similar to the third-party purchase agreement; however, earnest money is capped at 5% for the tenants/tenant association. The owner may not require the tenant association to prove financial ability to perform as a prerequisite to entering into a contract.
- A tenant association may exercise the right of first refusal in conjunction with a third party or by assigning those rights to any party, whether private or governmental.
- The timeline for closing is 120 calendar days for rental properties consisting of five or more dwelling units, and 60 calendar days of four or fewer dwelling units.
- If the tenant association fails to close, the owner may sell to a third-party purchaser. Any material change in the terms of sale, the tenant association right of first refusal is reinstated.
- Despite this being a pilot program, there is no defined end date for the tenant opportunity to purchase provision.
- Rental properties in the pilot zone are subject to further regulations
- If a purchaser purchases a rental property and uses any public funds in the purchase, then the rental property shall be maintained as affordable housing for no less than 30 years.
- Landlords may not evict for any other reason than serious, or repeated violations of the terms and conditions of a lease or occupancy agreement, otherwise defined as “just cause eviction.”
- Penalties
- Any person who violates the requirements set forth in this ordinance shall be fined, not less than $200 nor more than $1,000 for each offense. Each day that a violation continues, shall constitute a separate and distinct offense, to which a separate fine shall apply.
Demolition Permit Surcharge Area Maps
Issue Update
Update 12/2/24
On Monday, December 2, an amendment was introduced at City Hall to the Northwest Housing Preservation Ordinance. It includes the following changes:
- Effective date will be March 1, 2025 (changed from the original effective date of October 9, 2024, which was briefly extended during negotiations to November 29, 2024).
- Sunset provision will be December 31, 2029.
- Tenant Right of First Refusal:
- Waiver of Rights can be asked about after the “notice of intent to sell” period.
- If waiver of rights is not signed by end of “right of first refusal” period, tenant rights are automatically waived.
- In 5 or more-unit buildings, once fifty percent of tenants waive their right to purchase, the time of tenant rights ends.
- “Good Faith” Tenant Negotiations:
- Tenants in 4 units or less must provide a preapproval letter from a lender to exercise right of first refusal.
- Tenants in 5 or more-unit buildings must provide letter from community partner or lender indicating they are in the process of obtaining financing to exercise right of first refusal.
- Reinstatement of tenant rights. If, and only, if a 3rd party purchase fails and there is a 10% reduction in the asking price, tenant rights are reinstated.
Following its introduction, the amendment was assigned to the Zoning, Landmarks and Buildings Standards Committee and will be reviewed on December 9th, where it is expected to pass. If it passes, it will then be heard by the full City Council in December for final approval.
Update 11/8/24
The Department of Housing (DOH) will delay enforcement of the Northwest Housing Preservation Ordinance until at least November 29th while REALTORS® and the bill sponsors continue negotiations.
Update 10/28/24
On Wednesday, REALTORS® met with the sponsors of the Northwest Side Housing Preservation Ordinance, including Alds. Ramirez-Rosa, La Spata, Fuentes, Sigcho-Lopez and Cruz, to discuss amending the ordinance. Aldermen Cardona and Waguespack introduced amendments on behalf of REALTORS®, and the conversation with the sponsors about our amendments was productive. The amendments would delay the effective date and limit the impacts of the ordinance. REALTORS® have utilized a Call For Action, and the National Association of REALTORS® Land Use Initiative to bolster our case for delaying and amending the ordinance.
REALTORS® previously met with the Department of Housing (DOH) in mid-October. As a result of our Call For Action, DOH agreed to delay enforcement of the Northwest Housing Preservation Ordinance until November 9th, at which point any properties not under contract would be subject to the new law. The Department of Housing has posted forms online, and has posted notice that additional guidelines will be available by November 29th.
These actions and meetings were the first steps of a larger advocacy strategy to limit the impacts of this ordinance, which was rushed through City Council after becoming an issue of ‘Aldermanic Prerogative,’ a long-standing custom in Chicago City Council that each alderman dictates zoning decisions within their ward(s). Aldermanic Prerogative often results in near-unanimous votes (and this ordinance passed 44-3). Still, the rights of property owners, new regulations on property sales and the diminishing value of properties in this pilot zone are of primary concern to the association. We remain engaged on this issue even after its passage. We will continue to share details, possible timeline changes and ways to support our advocacy efforts.
What the REALTOR® Amendment Recommends:
- Delaying the effective date to April 1, 2025, which allows notice to be given to members, property owners and tenants so there is time for education and outreach. We may also put something in the MLS to ensure compliance. By April, any property listed would be subject to tenant notification so they would start the process 30-60 days prior to the effective date. Penalties are steep, up to $1,000 per day if non-compliant.
- A sunset provision, since this is a “pilot” and many council members supported it as a pilot. We recommended an end date of December 31, 2027, to allow for review and ensure the Department of Housing provides council with data about its impacts and effectiveness.
Read the full REALTOR® Amendment O2024-0013135.
REALTOR® Stance
The Northwest Housing Preservation Ordinance is the latest in a series of recent proposals that will increase housing costs and taxes in our city. Its demolition surcharge fee is arbitrarily quadrupled, despite evidence that a lower fee had accomplished the sponsor’s goal. That cost will be passed onto consumers. In addition, financing options for buyers and sellers will be limited, and affect available interest rates and opportunities to participate in federal programs. The proposal was sold as a pilot program to gain council support, however, the tenant “right of first refusal” program has no sunset provision. By delaying transactions indefinitely, homeowners in this region will lose equity and liquidity, and property taxes will remain high. We oppose this ordinance.