If you rent out a property as a landlord or rent a property as a tenant in California, the issue of late fees often arises. How much can a landlord legally charge in late fees? While there is no cut and dry answer to this question, there is some case law to which we can refer.
Case Law Specifies that Late Fees Can Be Collected if Two Conditions are Met
In Orozco v. Casimiro, 121 Cal.App.4th Supp. 7, the landlord Jose Orozco filed a complaint against his tenant Olivo Casimiro. In this case the rental agreement stated that the rent was due on the tenth day of each month with a three-day grace period, and that a late fee of $50.00 must be paid if the rent was paid late. The tenant paid his rent on the twenty-first of the month. He did not, however, pay the late fee.
The landlord then issued a “3-day notice to perform covenants or quit” to the tenant. This type of notice basically says that the tenant has violated the terms of the lease and has three days to correct the violation or move out of the property. The notice in this case said that the lease was breached because the tenant did not pay the $50.00 late fee along with the rent. The trial court issued judgment in favor of the landlord, and ordered that the property be returned to the landlord.
The judgement, however, was reversed. The court said that late fees can be collected if two conditions are met. First, the lease must state that late fees may be imposed. More importantly, the landlord must establish that its damages from the late payment are “impracticable or extremely difficult to fix.” In this case, the landlord could not meet that second condition. As such, the landlord was only entitled to “administrative costs reasonably related to collecting and accounting for”‘ late payments.
How Much is a Reasonable Amount for a Late Fee?
In California, there is no exact amount that is considered reasonable for a late fee but it should not usually exceed more than 5% of your rent and not be imposed until after a grace period of about three days. In the Orozco case, the $50 late rent fee was well in excess of 5% of the rent amount. In the case of residential leases, the landlord bears the burden of proof to show why the late fee is reasonable.
Tenants and landlords should both review the lease for the following points relating to the rent in order to avoid any misunderstandings with respect to late fees:
- The rent amount;
- The date the rent is due;
- The grace period before the rent is considered late; and
- The amount of any late fee.
There are, of course, other provisions to verify, including whether the lease is month-to-month or for a fixed term, and the amount of the security deposit. You should also check to see if the property is in a rent controlled area, as that may affect your rental agreement.
Addressing Your Late Fee Needs in California
If you have any questions or concerns regarding rental agreement late fees in the State of California, please feel free to contact us.