If your property is covered by the CRLTO (it sounds like it is), then you should give a formal 14-day notice of the defects with a demand to repair. If that 14-day notice expires without the necessary repairs, you may then either legally terminate your lease or bring suit against the landlord.
The 14-day notice and form of delivery are very specific and must be done in keeping with the statute so I highly recommend a consultation with a landlord tenant attorney in the city who can help with...
I agree with Andrew 100% and would only add that if your unit is subject to the CRLTO, a sublessor is viewed as a landlord, subject to all the sticky res if that ordinance. This gives you more incentive to negotiate some kind of buyout with the landlord instead of making yourself a landlord.
A landlord tenant attorney can assist with this.
If the leases provides for these charges, they are owed, and in keeping with the law (or, reasonable), you may include them in your 5 day notice. If you don't include them and you file an eviction suit later, you won't be able to include them in your claim.
This means that you may be responsible for some of the landlords costs if you terminate early and can't find a tenant right away. Under Illinois state law a landlord has a duty to mitigate damages in an early termination, which means must put reasonable effort into finding a tenant. But, the defaulting tenant is still responsible while he looks for said tenant.
If you know you can't fulfill a lease, you should not sign it, and instead try to work something out with a potential landlord...
Regardless of her status as a tenant, if she refuses to leave willingly, you must file an eviction case against her and this begins with a 30 day notice.
I highly recommend seeing a local attorney so you don't make any mistakes and lose time if you have to start over.
The notice may be acceptable if ll has confirmed with you. However, just to be safe, send a 30 day notice via registered mail in writing. Save proof of everything you send and receive from this point on in case any issues arise with ll.
As to the length of the lease, check your original lease agreement. If you have overstayed the lease, you're now considered a month to month tenant, and so the 30 day notice you're sending is the right way to terminate.
Landlords are supposed to give 60 days notice if they decide not to renew a lease. So, whether or not she can enforce the move out date depends on when she to you she was terminating the lease. So, if she didn't give you enough notice you may want to try using that as a bargaining chip to get a little extra time to move.
As far as the new terms for a lease renewal, ll is free to offer any terms and you are free to accept or reject them.
Since she has no lease, you may legally treat her as a month to month tenant. This means she can most likely be evicted by issuing a 30 day eviction notice, then filing suit against her if she doesn't leave after the 30 days.
You could benefit from consulting with a landlord tenant attorney in your area who is familiar with local customs and procedures for forcible suits. It will be worth the money spent to get her legally removed from the property.
Illinois has a statute governing the return of security deposits, but if the landlord is refusing to return it willingly, you will have to file suit to recover it. It sounds like there are multiple issues that may complicate your case, so I highly recommend consulting with a landlord tenant attorney to discuss your case in greater detail.
Have you discussed a Short Sale or Deed in Lieu of Foreclosure with the bank? Depending on the specifics of your situation, these are options which may allow you to give the property back to the bank. You should speak with a foreclosure attorney to see if either of those would work for you.