residential-lease
How many days of penalty are owed
<p>I am renting my old home to a family. I am not a professional landlord - just had a hard time selling that property in that market when I moved, and found a tenant to help cover the costs of owning a second home. The lease contract contains the following clause:</p>

<p><a href="https://i.stack.imgur.com/bQKT9.jpg" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/bQKT9.jpg" alt="enter image description here"></a></p>

<p>This month, the tenants’ check arrived in the mail on the 7th of the month. It is not clear to me whether they owe 6 days late fee ($60) or just two (“after five days”). This is the third time they “forgot” to pay in the six months they have lived there but the first time it’s more than five days late.</p>

<p>I suspect this is standard language - but to me it can be interpreted both ways. What is the correct amount of late charge?</p>

<p>PS - I am aware that everyone’s financial situation is exceptional at this time. Trying to be sympathetic to this, I have agreed to cut the rent payments by 50% until conditions improve, which means I owe considerably more to the bank every month than I collect in rent (the balance accrues interest free until conditions improve). “Forgetting” is different than “not having the money” - I think a small nudge is needed here. I am just not sure what the right size of nudge is.</p>

<p>The wording of the clause is not clear, but I would interpret this as saying that late charges start after 5 days. Otherwise, saying anything about 5 days is pointless. The reasonable interpretation is that the landlord is willing to allow up to 5 days of lateness, and eat the loss of those 5 days worth of interest. If you had intended that a 7 day fee be assessed for 7 days late, but no fee would be assessed for up to 5 days of lateness, you would have said it differently. (But then that makes the clause look like a penalty and not liquidated damages, so that interpretation could invalidate the late fee entirely). </p>

<h2>It doesn’t matter because the clause is almost certainly unenforceable as a <a href="https://legalvision.com.au/penalty-clauses-in-commercial-contracts/" rel="nofollow noreferrer">penalty clause</a></h2>
<p>At common law (an I assume you are in a common law jurisdiction because the clause is in English) a clause that contains a penalty rather than <a href="https://en.wikipedia.org/wiki/Liquidated_damages" rel="nofollow noreferrer">liquidated damages</a> is unenforceable. Only governments are allowed to penalise people.</p>
<p>To be a valid liquidated damages it has to be a genuine pre-estimate of what it will cost you if the rent is late. Given the current interest rate environment, $10 is clearly way more than what it would cost you to be without the money for a day (unless the rent is north of about $100,000 a month).</p>
<p>For example, a clause allowing you to charge a single administration fee of say $30 would be valid as it is a genuine pre-estimate of the time and effort involved in chasing up the rent.</p>
