Lease Agreement Late Fees Laws

A residential lease is a distinct type of legal agreement that is entered into when a tenant rents property from a landlord to use for residential purposes (i.e., living). Like other lease agreements, a residential lease will include the terms and conditions of the lease, such as the date that the lease expires and how frequently the tenant will need to pay rent.

A residential lease agreement will also generally guide the various legal rights and obligations of the signed parties. Unlike commercial leases, a residential lease is precisely drafted to ensure that a residential property offers sufficiently habitable living conditions and that a landlord will not interfere with the rights of a residential tenant unless it is required.

Late fees are legal under lease late fee laws as long as they are written in your rental lease and observe local laws regarding the amount you can be charged. Your landlord may not assess a late fee unless the lease or rental agreement has a late fee clause or unless they’ve informed you about the policy. In some circumstances, a landlord cannot levy a late fee until the rent is at least five days late. Per lease late fee laws, a landlord must include the maximum late fee it charges in its lease with a tenant. Under lease late fee laws, a landlord can only set one late fee for each late payment.

A landlord generally can charge a late fee if rent is not paid on the due date. Nevertheless, the landlord must have included a late fee provision in the written lease agreement stating how much the late fee is and when the late payment is due. A landlord also can start the unlawful detainer process if a tenant’s rent is late.

How Much Can the Landlord Charge for a Late Fee?

The maximum late fee allowed should be within a certain percentage of your rent. Your landlord is always on dangerous ground if the maximum late fee exceeds 5% of the rent.

Your late fee should be a percentage of your rent price. It’s typical for landlords to choose 5% of their monthly rent price. The maximum late fee allowed for rent payments is generally founded on a reasonable percentage of the monthly rental rate (5-10%) or a flat fee.

When a commercial lease late fee has to be charged, a renter has failed to pay on time.

Although this varies by state, residential and commercial lease late fees often fall under the same statute.

What Are Liquidated Damages?

It is often tough to resolve the landlord’s actual loss due to late payment of rent. Both parties may agree in advance, usually in the lease, that an established amount is due instead of calculating the actual loss after it is suffered. This type of clause in a lease is called a liquidated damages clause. The courts have typically upheld liquidated damages clauses in residential leases.

Liquidated damages are one kind of actual damages that may be awarded in a breach of contract claim. A prevalent example of this would be in the construction industry. Construction workers are usually hired to perform a specific job within a particular time. However, there are many occasions in which projects may be delayed.

Liquidated damages are the amount of monetary damages that contracting parties agree will be paid by the breaching party in the event of a breach. This specified amount is written into the contract in a portion known as a liquidated damages clause. A liquidated damages clause may be included in some contracts.

This is a contractual provision that determines, in advance, the amount of damages that are to be paid if a party breaches the contract. This means that the parties agree upon the damages figure beforehand when negotiating the contract.

A liquidated damages clause sounds like it can be used as a penalty for a breach of contract, but it is not intended to be. Whereas a penalty is meant to be a punishment in case of a breach, liquidated damages are intended to serve as protection for both parties who have entered the contract should there be a breach.

Liquidated damages clauses are generally enforceable if the amount stated is reasonably proportionate to the contract’s subject matter. Such clauses are put in contracts when the parties have difficulties calculating the exact measure of damages in the instance of a breach.

What Is Considered an Excessive Late Fee?

Courts in some jurisdictions have held late fees that are $1 a day to be excessive. Courts in other jurisdictions have held that charging $40 for being one day late is not excessive. What a court considers to be an unreasonable and excessive late fee depends on the jurisdiction.

What If the Late Fee Is Excessive?

Creditors legally can’t charge excessive late fees, which must be reasonable. In most cases, late fees typically range anywhere between $25 and $50. Some creditors may provide a grace period before the late fee is charged. For instance, rent may be due for an apartment on the first of every month.

Some other types of damages commonly issued in a breach of contract case include:

• Compensatory Damages: These damages are the most common remedy in cases of breach of contract. This type of remedy is generally intended to compensate the non-breaching party for losses suffered from a contract breach. Compensatory damages are not intended to punish the breaching party but to make the injured party “whole again” under the law;
• Restitution: Restitution is often ordered, so the breaching party must pay back the non-breaching party. Restitution intends to restore the injured party to their position before the contract’s creation. Because these damages are intended to restore the injured party to their original position, this does not include lost profits or earnings caused by the breach of contract;
• Nominal Damages: These damages are generally awarded when there was no real harm done due to the breach of contract. These are called “nominal” because damages are usually very small, sometimes as little as $1.00. You might consider this more of a symbolic victory or a matter of principle;
• Punitive Damages: These damages are intended to punish the offending party. They are not available in every situation, however. This type of damage is reserved for cases in which the other party has behaved morally reprehensible so that punishment is warranted. A simple misunderstanding is unlikely to result in punitive damages.

Can the Landlord Charge a Late Fee If the Security Deposit Is Late?

A landlord can take any unpaid late fees from a tenant’s security deposit. A landlord cannot charge interest late fees.

Can Late Fees Be Deducted From a Tenant’s Security Deposit?

Under the legal late fees policy in most states, you can deduct late fees from a tenant’s deposit if rent payments are late, as long as the fees are “reasonable” and are clearly outlined.

Do I Need a Lawyer for My Late Fee Problem?

Landlord-tenant law is very complex, varies by city, and constantly changes. An experienced landlord-tenant lawyer advises you of your city’s exact rules regarding late fees and can protect your rights, whether you are an owner trying to utilize a late fee clause or a tenant fighting an excessive and unreasonable late fee.