Q: I rent a residential unit to a tenant on an oral agreement. The rent is due on the 1st of every month. The tenant keeps paying late and I want to charge him late fees. Can I do this?
A: No, you cannot charge a late fee without a proper late fee provision in a written lease or rental agreement. A late fee provision may be used in a residential lease when it would be impracticable or extremely difficult to fix the actual damages incurred by the landlord. The landlord and tenant must agree that the amount charged bears a reasonable relationship to the actual costs and damages that the landlord will incur from the late payment. Without a proper late fee provision, you cannot enforce a late fee on your tenant.
Q: This is my first time renting out my residential unit and I am filling out the proposed lease. There is a late fee provision in the lease that allows me to charge a percentage of the rent or a flat fee. How much can I charge for the late fee?
A: It depends. A general rule is that your late fee should be no more than 6% of the monthly rent. For example, if your tenant pays $1,250 in rent per month, then you may charge up to 6% of $1,250, which is a $75 late fee. Your Lease also gives you the option to write in a flat fee, however, the late fee will be considered excessive if it is over 6% of the monthly rent. Remember, the landlord and tenant must agree that the amount charged bears a reasonable relationship to the actual costs and damages that the landlord will incur from the late payment.
Q: I have a residential tenant that pays late every month. He pays the late fee as required by the lease, but I want to raise the amount of the late fee to 10% to punish the tenant and encourage him to pay on time. The tenant has agreed to pay the higher late fee. Can I do this?
A: No, a late fee is not a punishment. A late fee is used to estimate the damages that are incurred by the landlord from late payment of rent. Even if the tenant agrees to the 10% late fee, this is considered excessive and is an illegal late fee provision. If the tenant pays too much for late fees, the landlord may have to credit the tenant back a portion of the late fee or the entire amount.
Q: The late fee provision in my lease states that if the tenant fails to pay rent by the 5th day after the rent is due then the tenant will incur a late fee. Do I charge the late fee on the 5th?
A: It depends. The wording of the late fee provision is very important. If the rent is due on the first and the late fee provision states the late fee is incurred if rent is not received 5 days after the due date, then five days after the 1st would fall on the 6th. Therefore, the tenant would have until the 6th to pay without incurring a late fee and the late fee should be charged on the 7th. If your late fee provision states that a late fee will be incurred if the rent is not received by the 3rd day of the month, then you may charge the late fee on the 4th. If you believe you have charged your tenant the late fee too early, then you will need to review your ledger and reimburse or credit the tenant for the prematurely charged late fee.
Q: I have a tenant who pays the rent late but refuses to pay the late fees. Can I give them a 3 Day Notice to Pay Rent or Quit for the late fee?
A: No, you cannot include late fees on a 3 Day Notice to Pay Rent or Quit. You must have a properly drafted late fee provision in your lease or rental agreement in order to charge the tenant late fees. If you have a proper late fee provision, then you may give the tenant a 3 Day Notice to Perform Covenant or Quit to pay the late fees. If the tenant does not pay after the 3 Day Notice to Perform Covenant or Quit, then you may have the option to file an eviction based on this notice, however, you should speak to an attorney before pursuing the eviction. You also have the option of taking the tenant to small claims court to be awarded the late fees. Given this tenant’s payment history, you may want to give them a notice to vacate. You should consult with an attorney’s office for lease review and further termination options.
Q: My tenants just moved out and they still owe me for 3 months of late fees. Can I deduct the late fees from the security deposit?
A: No, you cannot deduct late fees from the security deposit. The security deposit may be used for back rent, cleaning costs, and damages only. You may pursue the late fee charges in small claims court. It is good practice for the landlord to serve a 3 Day Notice to perform covenant or quit each time a late fee is due and unpaid.