When a tenant does not pay the rent by the due date, the landlord may be able to charge a late fee on top of the rent payment. This compensates the landlord for the extra hassle associated with collecting the payment, such as sending additional correspondence to the tenant and having to pay the mortgage bill from the landlord's own pocket. Late penalties are generally legal as long as they are written in the lease and follow state law. You can calculate them with simple math.
How Do You Determine When Rent is Late?
If rent is due on the first day of the month, it becomes past-due on the second day of the month. If rent is due on the 15th day of the month, it becomes past-due on the 16th day of the month. This sounds simple enough, but in fact, many leases are affected by a grace period. A grace period gives the tenant extra time to pay before the landlord can legally charge a late penalty. A common grace period is three to five days.
Does Everyone Get a Grace Period?
You are not automatically entitled to a grace period. It must be written into the lease or required by state law. If the lease is silent, then the late fee will kick in as soon as the rent is past due.
The states that mandate a grace period are the exception rather than the rule. Tenants in New Jersey, for instance, get an automatic five-day grace period – but only if they are low-income or elderly tenants. In Texas, the right to charge a late fee must be written into the lease or the landlord cannot charge one. The penalty itself cannot kick in until the rent is at least one full day past due.
The starting point then, is to check the rules of your state and read the lease. From this, you can work out exactly when the grace period ends and when the late fee becomes payable. Here are some examples to show how the grace period works. In each case, rent is due on the first day of the month:
- With no grace period, the late fee kicks in on the second day of the month.
- With a three-day grace period, the late fee kicks in on the fourth day of the month.
- With a five-day grace period, the late fee kicks in on the sixth day of the month.
What's the Amount of Late Fee?
Just as the tenant is not automatically entitled to a grace period, the landlord is not automatically entitled to a late fee. If the lease says nothing about late fees, the landlord may not charge one. So, if you mail your rent check three days late and the landlord says he'll only accept it if you pay a $20 late fee, you can refuse to make the payment.
The lease should reserve the landlord's right to charge a late fee, and it should also specify the amount of late fee. Sometimes it can be a rate per day, for instance, $10 per day until the rent is paid. Other times, it may be written as a flat fee such as $30.
Some states restrict the amount of late fee a landlord can charge and the fee itself may vary depending on the amount of rent. Landlords in Iowa, for example, cannot charge more than $12 per day, or $60 in total per month, for rents up to $700 per month. For higher rents, the ceiling is $20 per day or a total of $100 per month. It's a good idea to search online to find out if your state has laws that restrict the late fee amount. For instance, you can type "Colorado late rent fee limit" into a search engine.
What if the Late Fee Seems Excessive?
Even if the state places no dollar restriction on late fees, there are other legal principles that prevent the landlord from charging an unreasonably high late fee such as 20 percent of the rent. There are no hard-and-fast rules for judging what's reasonable, but the landlord may be on shaky ground if the late charge exceeds around 5 percent of the rent – that's $50 on a $1,000-per-month rental.
This protection applies even if you've signed a lease or rental agreement with an outrageous late-fee policy. The courts take a dim view of landlords who profit excessively from a tenant's mistake or misfortune, and generally are willing to strike unfair late-fee clauses from the lease.
That does not mean that you shouldn't pay the late fee, however, even if it is excessive. Whenever you are late paying rent, the landlord can send you a notice to "pay up or quit" which gives you a few days to pay what you owe before the landlord is permitted to file for eviction. Some landlords routinely file for eviction as soon as notice expires. If you want to save your tenancy, it's better to pay the excessive late fee and then file your own lawsuit in the small claims court, asking the judge to order the landlord to return it.
Running the Late Rent Calculation
After digging into the lease and state law, you should have the following information:
- The rent payment date
- When your grace period expires
- The amount of late fee
Armed with these numbers, it's easy to calculate the amount of late rent that is owed. Suppose the monthly rent is $1,000, due on the 1st of every month. A grace period is given until the 5th of each month. The lease allows for a late fee of $30 plus $10 for each additional day until the rent is paid in full. You pay the rent on the 9th day of the month, some four days after the grace period expires.
Here, you are on the hook for the fixed late fee of $30, plus $10 per day for the three late days adding to an additional $30 (6th day = $10, 7th day = $20, 8th day = $30), for a total late fee of $60. Don't forget you'll also owe the $1,000 rent! In most cases, there will be no late fee on the 9th day because this is the day you paid up. Be sure to read the lease carefully, however. The landlord will be permitted to charge an additional late fee for the 9th day if there's wording to that effect in the lease.
Rent Late Fee Calculator for Commercial Leases
A different regime tends to operate with commercial leases, and it's common to see a late-fee charge and a default interest clause in these documents. The late fee is designed to compensate the landlord for his extra collection activity, while the interest charge is designed to protect the rate of return the landlord is getting on his investment.
Default interest can be tricky to calculate since it's a factor of the monthly rent, grace period and percentage rate specified in the lease. The calculation is even more tricky if the interest is compounded. The best place to start is with a late rent payment interest calculator, which you can easily find online, to help figure out your liability.