Late Fees Are Illegal?

Question

This is a link to an interesting subject regarding Late Charges.

https://caltenantlaw.com/late-fees/

The article, written by an attorney, states that charging tenants a Late Charge Fees is illegal and when you evict a tenant the court can favor the tenant.

So, today, I changed my Lease Agreement. Rather than charging a 6% Late Charge, I changed my Lease Agreement to state that the tenant must pay a $75 Administrative Fee. According to the article, the $75 Administrative Fee is probably still illegal since the laws sort of state that landlords can charge only for liquidated damages and there is really no liquidated damage caused just because a tenant pays you late. You are really not supposed to be able to charge your tenant just because you have to make a few extra phone calls to collect the rent and make an extra trip to the bank because it is only a part of doing business that you already get paid.

I know for a fact that when you charge tenants a fee for being late they will do their best to pay when due, in the future. If you don't charge a fee to late tenants they will never have an incentive to pay you rent when due. So, it is absolutely necessary to hit the tenant somewhere. At the same time, I feel bad taking the money from tenants when I know they are already struggling to pay their rent.

Nathan Gesner · Answer

Account Closed haven't you learned by now that not everything you read is true? Just because something comes from an attorney or a journalist or a politician or a scientist doesn't mean it's factual.

Late fees are not illegal in your state (yet). You need to learn how to read the law and research things like this to ensure you're not getting bad advice.

My favorite source for a beginner is ​Every Landlord's Legal Guide by NOLO. (NOTE: There is a different version for California because your state is so heavily regulated; be sure to buy the California version). It's a big book full of practical advice from marketing, screening, leases, collecting rent, etc. It is written by attorneys and includes the law, not just opinion. It has links to your state laws so you can (and should) read them for yourself but it also includes summaries of important laws like how to handle security deposits or evict tenants for failure to pay rent. It also includes common forms that you can edit and use.Their web site is a free resource with links to your state law but I highly recommend the book for some of the practical advice they provide.

Account Closed · Answer

Thank you very much. I am cracking up, delirious and over-reacting. I changed my lease back to the 6% charge and will leave it at that.

Account Closed · Answer

Many things written into contracts and agreed upon are 100% illegal and the only way to find out is after a judge makes a decision. I agree with the article since every web web page that references the maximum charge landlords can charge states that the fees have to be actual costs and not an arbitrary or pre-determined fee.

Here are two statements from the internet. The first statement is scary since it states that Landlords cannot write into a lease a specific late fee. I didn't know that and every lease I ever wrote has specific numbers for late fees. I am assuming it is against the law to put a specific late fee in a lease agreement because the landlord does not know the actual fee until after the tenant is late and after the costs are incurred. So, all the landlords putting specific fees in their contracts must be doing business illegally and possibly ripping off their tenants, according to the law. When this is addressed in court I will bet the judge will always favor the tenant.

From the internet:

"In most cases, a rental agreement can't state specifically what the late fee will be. Under California law, it can only provide that such a fee may be charged. It typically can't set a number in advance.Reasonable Fees Under California law, it must be "reasonable," and reasonable is determined by what the late payment cost your landlord. The statutes don't include a definitive explanation of what percentage of your rent this can be, but courts generally uphold charges of 5 to 10 percent."

The statement says the courts generally uphold 5% to 10%, but that is what the court will agree to without an argument by your tenant's attorney who is telling the judge that the case needs to be thrown out because the amount of rent due is not correct because the landlord charged the tenant for late fees when the landlord cannot substantiate his actual costs with proof and records.

This may seem silly until you are taken to court and the judge is drinking vodkas in plain sight where the glass looks like it is half full of water and he needs a reason to get your butt out of his face to get to his next case.

I terminated 6 tenants in the past two weeks. So far, two tenants threatened to sue me. They may not have much of a leg to stand on, but I am assuming lawyers are as smart as I am and they know all about charging too much for late fees.

Dennis M. · Answer

Sounds like commie fornia !

Meg K. · Answer

My mistake: correction for NYS:

Landlords may only demand and collect a single fee for a late rent payment, per month, which may not be assessed until five (5) days after the monthly rent is due and payable. And in no event may that charge exceed $50. (Any lease provision modifying or waiving this statutory protection is void.) [Real Prop. Law §238-a(2)]

Meg K. · Answer

Rent not paid by the ____ of the month will be assessed a $____ late fee. This fee shall

be considered added rent.

I copied and pasted from Rochester, NY Housing Authority Free lease :) Last night I Read the legal decision in NYS passed this past June and late fees cannot be over a certain percentage (6%) of the rent.  OOOps...lots of LL operate without following laws.  If the tenant is well informed that's when trouble starts.  I think i will begin paying an attorney to go over my lease.

Jason Dobbins · Answer

Honestly you charge a tenant 6% late fee, are you telling me that a tenant would then take you to court and pay a lawyer thousands of dollars over a late fee?

Every service has a late fee.  You don't pay your electric bill on time they charge you a late fee, don't pay your cable bill late fee.

I get it a tenant could take you to small claims court over it but if you lose why would you stop charging late fees because a small claims court felt bad for the tenant.

I just looked at the Bigger Pockets Lease for my State and Florida both have late fee clauses.

Jim Cummings · Answer

And why are lenders allowed to add late fees if you don't make the mortgage payments on time?

Benjamin Tighe · Answer

"This may seem silly until you are taken to court and the judge is drinking vodkas in plain sight where the glass looks like it is half full of water and he needs a reason to get your butt out of his face to get to his next case."

This statement reminded me of the scene from the Cheech and Chong movie Up In Smoke. Couldn't help but laugh.

Could a landlord take a unit that rents for $1150/mo and lease it for $1200/mo with a $50/mo discount for timely payment and avoid this all together?

Greg M. · Answer

From the California Tenants—A Guide to Residential Tenants’ and Landlords’ Rights and Responsibilities written by the Department of Consumer Affairs’ Legal Affairs Division:Late fees and dishonored check fees A rental agreement cannot include a predetermined late fee. The exception to this rule is when it would be difficult to figure out the actual cost to the landlord caused by the late rent payment. Even then, the pre-determined late feeshould not be more than a reasonable estimate of costs that the landlord will face as a result of the late payment. A late fee that is so high that it amounts to a penalty is not legally valid.Now I can choose to accept the opinion of a lawyer that has an opinion that differs from 99.999% of other lawyers and 100% of standard practices and precedent, or I can go with the majority and the Department of Consumer Affairs’ Legal Affairs Division.

Late Fees Are Illegal?

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