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

••• Richard Villalonundefined undefined/iStock/GettyImages

Related Articles

With a hearty list of tenant protections on the books, California state laws make a whole lot of real estate functions perfectly clear. The state imposes limits on security deposit amounts and when they need to be paid back; affords tenants rights such as withholding rent or deducting DIY repair amounts from rent payments; and clearly defines legal eviction procedures. It's perhaps surprising, then, that state laws do not actually offer explicit rules for late rent fees or set hard limits on how much landlords can charge. Even more surprisingly, there is actually some debate about whether or not late rent fees are legal in California at all.

Late Fee for Rent: Leases

In California, it's widely perceived that the tenant's obligation to pay late fees hinges on the lease agreement the tenant signed — the same rental agreement that determines the tenant's monthly rent and when and where that rent is due. In the lease, it's common for the landlord or property management company to detail the consequences of paying the rent after the due date, including late fees and possible eviction. It's commonly interpreted that if the tenant agrees to the late fees by signing the lease, the landlord may charge the specific late fees detailed.

This street goes both ways, though (or, for Californians, this four-lane traffic jam goes both ways very slowly). If the rental agreement does not mention late fees, the landlord cannot legally impose late fees on the tenant. The legality of late fees in California is often misconstrued. Many tenants would rather pay small late fees requested by the landlord, whether they're technically legal or not, than to take a case to small claims court in order to determine legality.

Read More: California Law: Rent Late Fee

Late Fee for Rent: Legality

While state laws in California don't dig into late rent fees in the same way they do security deposits and eviction rights, the state's Civil Code offers some rules for general late fees in the form of legislation regarding liquidated damages, a term that refers to an estimate of (usually) monetary losses that are otherwise difficult to define. For decades, landlords and realtors' associations have used the legal concept of liquidated damages to justify collecting late fees.

Liquidated damages often go hand-in-hand with late fees as they are intended to approximate the amount of actual damages, which are uncertain at the time of the contract. Ideally, this prevents payees from fixing unreasonably large liquidated damages, per the Uniform Commercial Code, a uniformly adopted state law.

If late fees are to be treated as liquidated damages, the legal guidelines can be found in California Civil Code Section 1671, the Validity of Liquidated Damages. Civil Code Section 1671(d) determines that California allows late fees as liquidated damages under two circumstances: If it would be impracticable or extremely difficult to calculate actual damages or when the late party and the payee agree upon the amount of the late fee. The latter, of course, often happens upon a tenant and landlord signing a lease agreement.

Late Fee Charges and Limits

While it's a commonly held belief that California imposes a percentage limit on late rent fee charges, that's actually not the case. Many lease agreements impose a fee of 5 percent to 6 percent of the total rent for late payments, but this prevalent range is simply a creation of the California Association of Realtors, which provides the standard lease forms used by many landlords. It is not a product of the California legislature, which has not put any sort of standardized late rent fees or late rent fee limits on the books, at least as of 2020.

If taken to a court of law, though, it may be up to the landlord to prove that the late fee amount imposed upon their tenant was determined via "a reasonable endeavor to estimate a fair, average compensation for any loss that may be sustained," as ruled in the 1973 California Supreme Court case, Garrett v. Coast & Southern Federal Savings and Loan Association. If the landlord cannot prove these losses, he may have to return the fees to the tenant. The amount paid back, however, may be reduced by the actual costs suffered by the landlord caused by the late rent payment.

Related to late fees, California law does specifically allow property owners to charge tenants fees for bounced checks, which do often lead to the assessment of late payments. Throughout the state, these charges are limited to $25 for the first bounce and $35 for each additional bounced check.

The Late Fee Debate

In 2004, the California Appellate Court case of Orozco v. Casimiro set an important precedent, furthering debate about the state's already fairly cloudy stance on late rent fees. Importantly, the case determined that late fees under a residential lease agreement are considered liquidated damages, as many assumed. Interestingly, the court also determined that those liquidated damages would be void unless under extraordinary circumstances that, as in this case, make the damages extremely hard or impractical to fix.

The financial damages incurred by the late payment of rent, the court determined in Orozco, are not extremely difficult to fix. As southern California corporate lawyer Bennett Yankowitz of Single Oak Ventures, LLC, writes on his site eGeneralCounsel.com, "In fact, the actual damages are very easy to fix: they are simply interest on the amount of the overdue rent for the period of time that the rent was in fact overdue." And, at California Tenant Law, Ken Carlson of the Carlson Law Office agrees, stating that "it can never be impracticable nor extremely difficult to assess the landlord's losses, and his late fee will always be illegal and void."

Carlson notes that California Civil Code Section 3002 makes the method for assessing liquidated damages clear with this clause: "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 legal interest rate is capped at 10 percent per year for nonexempt lenders. For someone renting a $1,500 studio, that 10-percent interest amounts to something like 41 cents per day, a drastically smaller figure than a standardized $50 late fee of 5 percent of the rent amount. In fact, a 5 percent late fee would be the equivalent of about 180 percent yearly interest on a rent payment that's 10 days late.

Why Then Are Late Fees Commonplace?

Ultimately, lawyers like Yankowitz and Carlson argue that late rent fees have few legal grounds in California. In fact, Carlson goes so far as to say that even "your signing the [lease] agreement does not waive your rights to not pay them, get them back if you did, or sue the landlord for trying to get them."

Following Orozco v. Casimiro, the 2018 case of Del Monte Properties and Investment, Inc. v. Dolan, Humboldt County Superior Appellate Court, backs this notion up, at least in part. While some landlords attempt to circumvent the law by using lease agreement language that indicates they've arrived at fair, average compensation for their losses, this California court writes that courts "look beyond the language of the contract to determine the actual circumstances of the liquidated damages clause. An agreement to an invalid liquidated damages clause does not insulate it from attack under Civil Code Section 1671."

It's possible that the collection of late rent fees continues on as if normal largely because it takes legal intervention for tenants to avoid paying them or to recoup them. That legal intervention is not a route most tenants elect to take, especially in a housing market as tight as California's.

Consequences for Nonpayment

Despite the ongoing legal debate, that's not to say that paying late rent doesn't have any on-the-books consequences for California renters. It absolutely can, should the landlord decide to act. The Tenant Protection Act of 2019, which deals mostly with providing rent caps and eviction control statewide, does note in Civil Code Section 1946.2 that owners can rightfully terminate tenancy with just cause to do so. In this case, just cause may include tenant behavior, such as a repeated history of late rent payments. However, California attorney Frank Wei-Hong Chen chimes in via Avvo in 2018 to note that "if you do not have a lease or rental agreement which provides for late fees, the landlord [or property manager] cannot evict you for failing to pay a late fee."

In just about the worst-case scenario for tenants, paying rent late can lead to eviction. Once again, the rental agreement sets the agreed-upon date that the tenant must pay their monthly rent. In California, the landlord may be able to evict the tenant if rent is not paid on time. However, landlords in the state must give tenants no less than three days' notice, in which they can pay the rent or quit the premises, according to California's Code of Civil Procedure Section 1161. If the rent goes unpaid, the landlord has the right to file for eviction.

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.