What is an acceptable standard for late fees?
Many states do regulate the issues of late fees and/or grace periods. As with most landlord-tenant issues, you would need to conduct research for the state and local regulations for your rental property. The regulations by statute can limit the amount a landlord can charge for late payment of rent either as a specific dollar amount, a percentage of a monthly rental amount, or cap an amount or percentage as the maximum fee that can be charged. Statutes can also specify a statutory grace period to extend the time a tenant has to pay rent. Your lease agreement should comply with statutory requirements. As a general rule, even if an issue is addressed by statute, such as late fees, unless your lease agreement is specific to the issue, in this example, the late fees, you will not able to charge late fees to the tenant. You cannot enforce terms and conditions that are not disclosed in the lease and materially required as terms and conditions of the lease.
You may also want to research case law on late fees for your local jurisdiction on what a judge has determined to be reasonable on this issue.
Some examples of regulations regarding late fees:
Texas
An amendment last year to the Texas Property Code prohibits the collection of late fees until any portion of the rent has remained unpaid for two full days after the original due date. The amendment established a safe harbor wherein, if late fees do not exceed a certain percentage, the fee is automatically considered reasonable under the law. Any late fee must be reasonable. Under the safe harbor, for a rental dwelling located in a structure with no more than four dwelling units, a late fee is considered reasonable if the fee is not more than 12% of the amount of rent for the rental period under the lease. For a rental dwelling located in a structure that contains more than four dwelling units, a late fee is considered reasonable if the fee is not more than 10% of the amount of rent for the rental period under the lease. A late fee that exceeds the safe-harbor amount can still be considered reasonable as long as the fee is in line with the damages to the landlord that might be reasonable as a result of late payment of rent.
Colorado
Lawmakers in Colorado have proposed a one-size-fits-all rule to cap late fees for all tenants, and to require landlords to wait until rent is at least 14 days past due before taking any action. After this grace period a landlord could charge the greater of $20 or 3% of the rental amount.
New York State
New York state law regarding late fees and grace period specify:
- Tenants have a 5 day grace period to pay rent – landlord may not demand a late fee unless the payment of rent is not made within 5 days of its due date; landlord must send a late notice, by certified mail, upon failure to receive rent payment within 5 days of its due date.
- Late fees may not exceed $50 or 5% of monthly rent, whichever is less.
District of Columbia
The District of Columbia passed the Late Fee Fairness Amendment Act that regulates the late fees that a landlord can charge tenants. The Act requires:
- A landlord can only charge up to 5% of the rent as a late fee.
- The late fee for a tenant who receives a rent subsidy has to be calculated based on the tenant’s share of the rent.
- A landlord cannot charge a late fee until the rent is at least 5 days late.
- A landlord has to include the maximum late fee in the lease agreement.
Any of the examples cited above will require due diligence verification of the current regulations and restrictions in effect at time of article publication.