Illinois Commercial Rent Increases: The Preemption Act

Since the Rent Control Preemption Act (50 ILCS 825) went into effect on August 1, 1997, commercial rent increases in Illinois have been entirely uncapped and dictated purely by the free market and the lease agreement. Unlike residential tenancy in some jurisdictions, Illinois law explicitly prohibits local municipalities from imposing rent control on commercial properties.

Official Law Citation: The rules and regulations outlined on this page are governed by general commercial contract law and the statutory prohibition on rent control under the Rent Control Preemption Act.

The Rent Control Preemption Act (50 ILCS 825)

Illinois has a long-standing law on the books known as the Rent Control Preemption Act. Simply put, this state statute forbids any city, county, or local municipality in Illinois from enacting any type of rent control.

This applies directly to both residential and commercial properties. Consequently, cities like Chicago or Evanston cannot pass ordinances limiting how much a commercial landlord can charge per square foot or how much they can increase the rent upon lease renewal.

Structuring Commercial Escalations

Because the state will not step in, commercial landlords must proactively structure rent increases into their lease contracts. These built-in increases are essential for protecting the landlord's ROI against long-term inflation.

Common structures used in Illinois commercial leases include:

1. Fixed Step-Ups: The rent increases by a predefined flat dollar amount or a fixed percentage every year of the lease (e.g., $15/sqft in Year 1, escalating by 3% annually).
2. CPI Escalations: The rent increases annually based on an index, typically the Consumer Price Index (CPI), ensuring the revenue outpaced inflation.
3. Percentage Leases: Most common in retail. The tenant pays a "base rent" plus a percentage of their gross sales over a certain threshold (e.g., $5,000/month base rent + 5% of gross sales exceeding $500,000 annually).

Timing and Notice

If a commercial lease is expiring, Illinois law does not mandate a rigid 60-day or 90-day warning before a landlord can demand higher rent for a new term. Disputes regarding commercial lease renewals and rent adjustments are generally handled in the Illinois Circuit Courts. However, practically all sophisticated commercial leases contain an Option to Renew clause.

This clause typically states the tenant must provide written notice (often 6 to 9 months in advance) of their intent to renew the lease. The exact terms of the renewed rent increase are either stated directly in the clause (e.g., "110% of the previous year's rent") or tied to a defined "Fair Market Value" appraisal process.

Holdover Tenancy

If a commercial lease expires, the tenant remains in the space, and the landlord continues to accept rent, they become a month-to-month holdover tenant. Under Illinois law (735 ILCS 5/9-207), a landlord may terminate the tenancy by providing 30 days' written notice. This 30-day notice is the legal mechanism required to terminate a month-to-month tenancy in order to offer a new lease at an increased rent.

However, a well-drafted commercial lease will contain a severe Holdover Penalty Clause. These clauses specify that if the tenant does not vacate upon expiration, the rent instantly doubles (or jumps to 150%) to penalize the business for overstaying and preventing the landlord from leasing to a new tenant. Note that 735 ILCS 5/9-202 also provides for double rent if a tenant willfully holds over after their term expires and after the landlord has made a demand in writing for the possession thereof.

How Landager Helps

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