Am I able to collect late fees from a residential tenant under a three-day notice to pay rent or quit?
The late charge is a rent-related fee. And believe it or not, whether rent-related fees are collectible under a three-day notice depends heavily on the unlawful detainer (UD) court judge in your jurisdiction.
Judges in UD actions on residential or lease agreements vary in their approach to late charges:
- some allow masked late charges built into the monthly rent and cloaked as forgiveness of 6% to 10% of the scheduled rent, if paid before the rent (including the masked late charge) is considered delinquent;
- some allow a late charge of up to 6% of the delinquent rent as a reasonable amount;
- some disallow fixed-sum late charges as an unenforceable penalty for being delinquent;
- some disallow late charges as forfeiture of money (since the amount exceeds the costs of collection); and
- some just disallow late charges altogether as an exercise of their discretion.
The best way to get the skinny on what the judges in your jurisdiction allow is to ask other landlords or attorneys. If the judges in your area don’t allow a collection of the late charges as part of the amount due from the tenant, leave it out of your three-day notice. Instead, deduct the late charge from the security deposit or pursue collection in a separate action for money. Both of these remedies avoid the issue of demands placed in the three-day notice.
If a late fee is charged, case law limits the charge to an amount reasonably calculated to cover the losses inflicted by late payment. A good way to approximate reasonability is to set the late charge at an amount equal to the late charge allowed on delinquent residential loan payments by the state legislature. The late charge formula on delinquent mortgage payments is a good indicator of what is deemed reasonable.
For a thorough review of this discussion, see first tuesday Property Management (Chapter 28: Other amounts due under three-day notices).