California Law: Rent Late Fee

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With home ownership rates declining for the first time in two years in the first quarter of 2019 – from 64.8 percent to 64.2 percent, according to the Wall Street Journal – paying a late fee for rent can be a very real fear for many Californians. Though the stress might be palpable (on the tenant side, at least), actual on-the-book late fee laws in California are nebulous at best. Because the state doesn't impose specific laws regarding fees for late rent payments, these fees are viewed as liquidated damages in the eyes of the court, putting much of the legal weight in the tenant's corner.

California Late Fee Laws

While common practices lead to the widely accepted belief that 5 percent is the standard late fee for rent in California, it turns out that this isn't actually state law at all. So is it legal for landlords to charge a 5 percent late fee for rent in the Golden State? As corporate and business lawyer Bennett Yankowitz writes on his website: "In a word, no."

The ballpark 5-percent-ish figure likely shows up on many California lease agreements because landlords use standard lease templates from the California Association of Realtors. These form agreements, as do many others not provided by CAR, include a late fee clause. As such, many tenants contractually agree to pay their landlords a specified late fee if rent is not paid by the due date as specified in the contract.

Keep in mind, this is a contractual agreement between the two parties and not a state-enforced late fee law. While it may be easier on tenants to pay a late fee than it is to go to court, late fees are typically unenforceable in California courts, according to Bennett.

Late Fees Are Liquidated Damages

Because fees for overdue rent payments in California are determined on a case-by-case basis via individual contracts between landlords and renters, those fees are classified as liquidated damages, which basically refers to damages doled out when a breach of contract occurs. Liquidated damages fall under the Uniform Commercial Code (UCC), which governs contracts across the United States. The UCC says that the amount of monetary damages paid must be approximate to the damages actually incurred by the breach of contract.

Similarly, California Civil Code Sections 1671(b) and 1671(d) state that these fees should be treated as liquidated damages unless one of the parties can demonstrate that it's unreasonable to do so. In 2004, the California case of Orozco v. Casimiro established the precedent that late fees under a residential lease are indeed liquidated damages.

Amount of Late Fees for Rent

So what does all this mean for the actual monetary amounts often requested – and agreed upon by the renter in the rental agreement – for late rent fees in California? California Civil Code Section 3302 steps in here: 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.

In California, the allowable maximum annual interest rate is 10 percent per year, which is a whole lot less than 5 percent on one month's rent. For example, on a $1,200-per-month studio rental, the legally enforceable figure for late fees as liquidated damages would be something like 33 cents per day.

Late fees aside, landlords do have California law on their side as to when a rent payment becomes late. If the tenant fails to pay rent on the first day of the month as agreed upon in the lease, the landlord may file for eviction as soon as the fourth day of the month. After the payment due date agreed upon in the lease agreement passes, landlords are only required to provide at least three days' notice to the tenant to pay the overdue rent or quit the premises. At California Tenant Law, however, attorney Ken Carlson notes that if a late fee is included in the three-day notice, the court may deem the eviction notice invalid on the basis that the amount of the fee demanded is excessive.

Read More: Late Fees for Rent in California: How Much Can Landlords Charge?

Tips

  • In California, late rent fees are liquidated damages; though they're commonly collected by landlords, these fees are difficult to enforce in a court of law.

References

About the Author

As a freelance writer and small business owner with a decade of experience, Dan has contributed legal- and finance-oriented content to diverse sources including Chron, Fortune, Zacks.com, Motley Fool and MSN Money, among others.