What is late fee in a lease agreement?
A landlord generally has the ability to charge a late fee if rent is not paid on the due date. However, the landlord must have included a late fee provision in the written lease agreement stating how much the late fee is and when the late fee is due.
How Much Can the Landlord Charge for a Late Fee?
The landlord can charge any reasonable amount that reflects the landlord’s actual losses because of the late rent payment. Late fees should not be designed to penalize the tenant.Unreasonably high late fees are usually not enforceable.
Liquidated Damages Clause:
It is often very difficult to determine the actual loss the landlord suffers due to late payment of rent. Both parties may agree in advance, usually in the lease, that a specified amount is due instead of calculating the actual loss after it is suffered. In India, the normal practice, is to consider a percentage in the range of 18 – 24% of rent as late fee
What if the Late Fee is Excessive?
If the late fee is excessive and unreasonable, a court may declare the clause in the lease containing the late fee provision void. A tenant may also be awarded money to penalize the landlord if the late fee violates a city or state law.
What is Considered an Excessive Late Fee?
A late fee charge of 18% of the rent can be collected by the landlord for a one month’s delay of rent payment,which will escalate to 24% for a two months’ delay. The landlord can exercise his right to terminate the lease without refunding the security deposit ,if there is delay in rent payment for three or more months.
Penalty Clause : This is often confused with the late fee charges clause. Penalty clause is a clause found in lease agreements that provides for a penalty in the event of default.The landlord can exercise a penalty clause when
- The tenant fails to renew the lease agreement and continues to occupy the premises after the termination of date of the lease.
- The tenant continues to occupy the premises after the lease termination date
- Unlawful occupation of the premises by the tenant after the notice to vacate has been issued by the landlord.
- Vacation of the premises within the specified lock in period.
In such cases ,the penalty charged can be as high as 500% of the agreed rent amount.
In both the scenario of late fees and penalty, the significance and consequence of the clause has to be agreed by both the Lessor and Lessee
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