If you're renting an apartment or a house, it's likely you have a clause in your lease that spells out a late fee if you pay your rent past the due date. Laws protect tenants from exorbitant late fees, but it's best to read the fine print of your agreement carefully to make sure there are no questionable clauses before signing it and moving in; paying for an attorney to battle the high late fees is much worse than choosing a house or apartment with a fair late policy. If you happen to be the landlord, the same suggestions apply, although you are the one imposing the late fee.
Purpose of Late Fees
The purpose of a late fee is to compensate the landlord for any expenses incurred because you didn't pay your rent on time. For example, he may have bills that are due that he must postpone payment on if you don't pay your rent on time, incurring late fees of his own. The late fee is also meant to keep late payments from becoming a habit. While anyone can make a late rental payment once in awhile, you made a deal when you signed your lease. The landlord has the right to expect that you'll keep your end of the bargain and to receive reasonable compensation if you don't.
Many landlords set a percentage for a late fee. A standard amount for a late fee is 3 to 5 percent of the monthly rental amount. If you pay $750 per month, this would be about $23 to $38. This amount is typically considered both reasonable and adequate for covering any late fees or other charges the landlord absorbs because your rent is late. In some states, the landlord can charge as much as 10 percent. Watch for clauses that increase the percentage the longer you're late. For example, you may have a five-day grace period after your rent due date, during which no late fees accrue. Then, you might have to pay 3 percent from day six to day 10, then 10 percent starting on day 11.
Landlords may choose to charge a flat fee instead of a percentage. Calculate the percentage to make sure the flat fee is a reasonable amount. For example, if you're paying $750 per month and the late fee is $75, that's a 10 percent fee. Although that high percentage is legal in some states, including New Mexico and Tennessee, it's higher than the standard 3 to 5 percent. A 10 percent fee is also illegal in some states, including Maine, Massachusetts and North Carolina. Try to negotiate the flat fee down to a more reasonable amount, such as $25, which is slightly more than 3 percent.
Know the Law
Each state has its own laws regarding how much of a late fee the landlord can charge, so check with a real estate attorney before starting your hunt for a rental. Some cities also have rent-controlled areas, where the law governs how much rent can be, what late fees are acceptable and what steps a landlord must take before evicting you. Many states simply mandate that the late fee be "reasonable," without really defining the term.
Others have very specific laws. In Delaware and Maryland, for instance, late fees cannot exceed 5 percent of the rent. In Texas, landlords can charge a basic late fee and then add additional fees every day the rent is late. Know how much your landlord can charge for late fees before you sign the rental agreement. Keep in mind that most states allow landlords to charge a late fee plus a service fee for checks returned for insufficient funds. Most states also allow a landlord to charge you a late fee only if that fee appears in the lease.
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