rental-property tenant
Is a 2% late fee for paying rent 20 minutes late (5:20pm) enforceable?
<p>My apartment manager is charging me a late fee for failing to turn in the rent check by 5pm on the first.  </p>

<p>I live in Los Angeles. </p>

<p>I don't have a copy of my lease on hand, but this sounds ridiculous even if it's in the lease is it legal? </p>

<p>*****UPDATE*****</p>

<p>According to <a href="https://www.nolo.com/legal-encyclopedia/california-late-fees-termination-nonpayment-rent-other-rent-rules.html" rel="nofollow noreferrer">nolo</a>
"Under California law, <strong>a late fee will be enforced only if the fee is a reasonable estimate of the amount that the lateness of the payment will cost the landlord</strong>, and if specified language is include in a written lease or rental agreement."</p>

<p>Unfortuneately there's no citation to the source, but if this website is correct, then the landlord must show cost (harm) before imposing a late fee, even if specified language (on the first by 5pm) is included in the lease.  I <strong>paid twenty minutes late: the check was given to the property manager while she was in the office</strong>  </p>

<p>Are there any specific cases that anyone here knows of? </p>

<p>If the landlord has a right to charge a late fee (and that late fee is not a <a href="https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2015/11/when-is-a-contract-term-an-unenforceable-penalty/files/corp_update_nov15_unenforceable-penalty/fileattachment/corp_update_nov15_unenforceable-penalty.pdf" rel="nofollow noreferrer">penalty</a>) then that right accrues from the instant that the rent is late i.e. any time after 5:00:00 pm precisely if that is the time stated in the lease. If only a day is stated then it would be midnight.</p>

<p>For case law on the penalty doctrine see <a href="http://www.hcourt.gov.au/assets/publications/judgment-summaries/2016/hca-28-2016-07-27.pdf" rel="nofollow noreferrer">PACIOCCO &amp; ANOR v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
[2016] HCA 28
</a> which involved a challenge to a bank charging late payment fees on credit cards.</p>

<p>In order to be legal, the fee has to pass muster as "liquidated damages". The law (<a href="https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&amp;sectionNum=1671." rel="nofollow noreferrer">Cal. Civ. § 1671</a>) states that</p>

<blockquote>
  <p>In the cases described in subdivision (c), a provision in a contract
  liquidating damages for the breach of the contract is void except that
  the parties to such a contract may agree therein upon an amount which
  shall be presumed to be the amount of damage sustained by a breach
  thereof, when, from the nature of the case, it would be impracticable
  or extremely difficult to fix the actual damage.</p>
</blockquote>

<p>where subdivision (c) identifies this provision as applying to "A party to a lease of real property for use as a dwelling by the party or those dependent upon the party for support". So it means that you have to have agreed to it. <a href="https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&amp;sectionNum=3302." rel="nofollow noreferrer">Cal. Civ. 3302</a> clarifies that "The detriment caused by the breach of an obligation to pay money only, is deemed to be the amount due by the terms of the obligation, with interest thereon", which is legally capped at 10% per year, or 0.00041% for 20 minutes. This law means that the landlord cannot additionally bill you for pain and suffering or lost business opportunity. However, as recited in <a href="https://caselaw.findlaw.com/ca-superior-court/1010356.html" rel="nofollow noreferrer">Orozco v. Casmiro</a>, 121 Cal.App.4th Supp. 7, case law (<a href="https://law.justia.com/cases/california/court-of-appeal/4th/38/274.html" rel="nofollow noreferrer">Hitz v. First Interstate Bank</a>, 38 Cal.App.4th 274) has also allowed liquidated damages to include "administrative costs reasonably related to collecting and accounting for late payments". So, when this ends up in court, the landlord would have to show that "damages were impracticable or extremely difficult to fix". That is where the landlord has to show it. You could, for example, refuse to pay the fee, the landlord could then attempt to evict you, and she would allege that you violated the terms of the lease by not paying the agreed-on liquidated damages. At that point, the burden is on her to establish that the amount is complies with the law.</p>

<p>The bulk of the purported damages would probably be attributed to administrative costs, i.e. the cost of computing interest and keeping record of it. I can find no evidence that California law prohibits micro-calculating the annual rate for interest, and daily interest was not deemed illegal in <a href="https://law.justia.com/cases/california/supreme-court/3d/15/866.html" rel="nofollow noreferrer">Chern v. Bank of America</a> (but the "365/360" method of computing interest is misleading). If you are paying a million dollars a month in rent, an argument can be made that 20 minutes causes substantial damage to the landlord. </p>

<p>The fee as described <strong>might</strong> be unenforceable. It will depend on exactly what is in the lease, and what evidence the landlord can present of its reasonableness.</p>
<h2>Late Fees</h2>
<h3>The Law</h3>
<p><a href="https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&amp;sectionNum=1671." rel="nofollow noreferrer">California Code section 1671</a> paragraph(d) says:</p>
<blockquote>
<p>a provision in a contract liquidating damages for the breach of the contract is void except that the parties to such a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.</p>
</blockquote>
<p>A late fee is a form of liquidated damages. Therefore one can <strong>only</strong> be imposed if it is specified in the lease, <strong>and</strong> if it is a reasonable measure of the actual damages to the landlord.</p>
<h3><em>Orozco v. Casimiro</em></h3>
<p>The case of <a href="https://caselaw.findlaw.com/ca-superior-court/1010356.html" rel="nofollow noreferrer"><em>Orozco v. Casimiro</em> (2004) (121 Cal.App.4th Supp. 7)</a> applied this provision, and is considered a key case. The <em>Orozco</em> decision said:</p>
<blockquote>
<p>As is apparent from the language of section 1671, a liquidated damages provision in a residential lease is normally void, except where the parties specifically agree and “when, from the nature of the case, it would be  impracticable or extremely difficult to fix the actual damage.”  (Sec 1671(d))  Once the landlord shows that it was impracticable or extremely difficult to fix actual damages, the amount the parties agreed upon is presumed to represent the amount of damage suffered by the breach.</p>
</blockquote>
<p>...</p>
<blockquote>
<p>Respondent's complaint did not plead that the late fee was impracticable or extremely difficult to fix.   Furthermore, respondent did not present any such evidence at trial.  </p>
</blockquote>
<p>...</p>
<blockquote>
<p>In the absence of such evidence, he was not entitled to the presumption that the late fee was the amount of damage caused by the late payment.   Thus, under the evidence in this case, the late fee was void and unenforceable.</p>
</blockquote>
<p><em>Orozco</em> concerned a flat fee of $50, applied after a 3-day grace period. That decison quoted with approval  <em>Hitz v. First Interstate Bank</em> (1995) (38 Cal.App.4th 274, 278) in which a late fee assessed to credit card accounts when the minimum payment was not made on time was held unenforceable. The court noted that there was evidence that this fee was imposed a a method of &quot;increasing profitability&quot; and therefore was not a reasonable estimate of damages.</p>
<h3>Other Sources</h3>
<p><a href="https://caltenantlaw.com/late-fees/" rel="nofollow noreferrer">This page</a> from a law office apparently favoring the tenant side of landlord-tenant disputes claims that &quot;Late fees are illegal&quot; and that the limit of any reasonable fees is the statutory 10% per year simple interest specified by California code section 3302. (<a href="http://www.yankowitzlaw.com/real-estate/is-it-legal-to-charge-a-5-percent-late-fee-for-rent/" rel="nofollow noreferrer">This page</a> from a different law firm makes essentially the same claim.) Both cite <em>Orozco</em> in support of this. However, the decision in <em>Orozco</em> didn't say that. Rather, it said:</p>
<blockquote>
<p>A landlord is not limited to interest as damages as a consequence of the late payment of money.   He is also entitled to  “administrative costs reasonably related to collecting and accounting for” late payments. (quoting <em>Hitz</em>).</p>
</blockquote>
<h2>Grace Periods</h2>
<p><a href="http://www.fastevictionservice.com/blog/late-rent-fees-california-how-much-can-landlords-charge/" rel="nofollow noreferrer">This page</a> from a frim providing services to landlords, says:</p>
<blockquote>
<p>Late rent fees need to have a grace period before rent is late in California. For example; let’s say the rental agreement stipulates rent is due on the first. Your tenant usually has 3 days to pay the rent before you apply the late fee.</p>
</blockquote>
<p>However, i was not able to find any statute or case law to support the the requirement of a grace period, although a grace period is apparently usual.</p>
<p><a href="https://www.avail.co/education/laws/california-landlord-tenant-law" rel="nofollow noreferrer">This page</a> says that no grace period is required. But then, it also says that late fees do not need to be in the rental agreement, which I know is incorrect under sec 1671.</p>
<p><a href="https://homeguides.sfgate.com/california-tenant-law-late-fees-57076.html" rel="nofollow noreferrer">This page</a> says:</p>
<blockquote>
<p>Your lease must clearly state that you're liable for [a late fee] if you pay late, as well as the date your rent is due. Technically, you could be liable the very next day, but only if this is what your written lease says.</p>
</blockquote>
<p>...</p>
<blockquote>
<p>A late fee can't be punitive and act as punishment for paying your rent behind schedule. Under California law, it must be &quot;reasonable,&quot; 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.</p>
</blockquote>
<h2>Local laws</h2>
<p>Many cities and some other localities have their own landlord-tenant laws. Some of these include rent control. Some impose additional restrictions on rental agreements for dwellings (as opposed to for business locations).</p>
<p><a href="http://dcba.lacounty.gov/portfolio/late-fees/" rel="nofollow noreferrer">An official page from LA County</a> says:</p>
<blockquote>
<p>Your landlord can only charge a late fee if your written rental agreement allows for it. Read your rental agreement to see if late fees are allowed.</p>
<p>Late fees that are 5% or less of your monthly rent are considered reasonable. If the landlord requests a late fee that you feel is too high, ask for a lower fee.</p>
<p>If a late fee is 10% or more, contact us for assistance.</p>
</blockquote>
<h2>Conclusion</h2>
<p>So <strong>if</strong> the late fee and lack of grace period are included in the written lease, and <strong>if</strong> the landlord can establish that this is a reasonable measure of actual damages to the landlord, the fee can be charged. But not otherwise.</p>
<p>The first thing it to check the exact wording in the lease. If it doesn't support the fee being charged, or the date and time when it is applied, it is not enforceable.</p>
<p>If the fee is in the lease, it could be challenged as unreasonable. Whether a court would uphold a fee for a payment 20 minutes late no one can know until such a case it brought to court. And it might not be worth the time and trouble, even in small claims court. But such fees are not favored by California laws.</p>

<p>Assume, for the sake of argument, that you pursue this fee with your landlord, and you win and recoup your 2% cost.  </p>

<p>After that, your landlord will almost certainly not renew your lease, and you'll be looking for a new place to live.   Any potential new landlord will call your previous landlord for a reference check.</p>

<p>They will be told that you paid rent late and disputed contract terms. </p>

<p>No new landlord will rent to you.   Your housing prospects will get far, far worse.</p>

<p>Is that a hassle you want to go through over a 2% late fee when you did, in fact, pay 20 minutes late?</p>

<p>Even if you can eek out a legal victory here (which I consider unlikely), the win would likely put you in a far worse situation than if you just learn your lesson and pay the fee.</p>
