Landlord Rights: What You Can and Cannot Charge as a Late Fee

Understanding Landlord Rights vs. Limitations

As a landlord, you have the legal right to charge late fees when tenants fail to pay rent on time—but these rights are not unlimited. A complex interplay of federal fair housing laws, state statutes, and local ordinances creates a framework that balances property owner interests against tenant protections.

According to the National Multifamily Housing Council, 68% of landlords charge late fees, but approximately 23% have faced legal challenges due to non-compliant fee structures. Understanding what you can and cannot charge is essential for protecting your rights while avoiding costly litigation.

What You CAN Legally Charge

1. Reasonable Late Fees Within State Caps

You can charge late fees that courts deem appropriate—typically 5-10% of monthly rent in states without specific caps.

States with clear authorization:

• Texas: Up to 10-12% depending on building size (Property Code § 92.019)
• Tennessee: 10% or $30, whichever is greater (Code § 66-28-201)
• Hawaii: Up to 8% of monthly rent (Revised Statutes)
• Utah: Greater of $75 or 10% (Code § 57-22-4)

Reasonableness states:

In the 30+ states requiring "reasonable" fees without specific caps:

• 5% is generally safe (rarely challenged)
• 7-8% is defensible with proper documentation
• 10% approaches the limit of reasonableness
• 15%+ is typically void as punitive

Sources: HUD Survey of State Laws, iPropertyManagement

2. Administrative and Processing Fees

Some states allow separate fees for processing late payments:

Administrative fees you CAN charge:

• Certified mail costs for late notices ($7-10)
• Bank fees for bounced checks ($25-35 per CA Civil Code § 1719)
• Processing fees for payment plan setups (if reasonable and in lease)
• Online payment convenience fees (typically 2.5-3% for credit cards, disclosed upfront)

Important: These must be actual costs, not disguised late fees.

3. Interest on Overdue Rent

In states like California where late fees face strict scrutiny, landlords can charge legal interest rates on overdue balances:

• California: 10% annual rate (approximately $0.27/day per $1,000 rent)
• New York: 9% annual rate on judgments
• Illinois: 5% annual rate (General Statutes)

This approach is less controversial than flat late fees and supported by contract law principles.

Source: Tenants Together, California Tenant Law

4. Multiple Fee Tiers for Prolonged Lateness

Some leases legally include escalating fees:

Example structure (where permitted):

• Days 6-10 late: 5% late fee
• Days 11-20 late: Additional $25 administrative fee
• Days 21+ late: Additional $50 collection fee

Requirements:

• Each tier must be in the lease
• Combined total cannot exceed state caps
• Must be reasonable and related to actual costs

Warning: Courts scrutinize tiered structures. Oregon and some other states prohibit them entirely.

What You CANNOT Legally Charge

1. Fees Exceeding State Statutory Caps

Even if your lease specifies 20%, if your state caps at 10%, you can only charge 10%. State law supersedes lease agreements.

Example violations:

• New York lease charging $100 on $1,500 rent (exceeds $50 cap)
• Colorado lease charging 10% without 7-day grace period (violates SB 173)
• DC lease charging 7% (exceeds 5% cap per Late Fee Fairness Act)

Consequence: Illegal fees are void. Tenants can sue for refunds plus attorney's fees.

Sources: NY RPL § 238-a, DC Late Fee Fairness Amendment Act, CO SB 173

2. Fees During Mandatory Grace Periods

You cannot charge fees during state-mandated grace periods:

Prohibited:

• Charging on day 3 of rent due date in Connecticut (9-day grace period required)
• Assessing fees on day 4 in Texas (2 full days required)
• Charging on day 5 in New York (5 business days required)

Legal effect: Fees charged during grace periods are automatically void, even if tenant doesn't contest them initially.

3. Compounded Late Fees (Fees on Fees)

You cannot charge late fees on previously assessed late fees.

Prohibited calculation:

• April rent: $1,000 + $50 late fee = $1,050 total owed
• May calculation: $1,050 × 5% = $52.50 (ILLEGAL)
• May calculation: $1,000 × 5% = $50 (LEGAL)

Wisconsin Statutes § 704.95 explicitly prohibits this, and courts nationwide void compounding fees as punitive.

Source: Wisconsin Statutes, Landlord-Tenant Law treatises

4. Unlimited Daily Late Fees

While some states allow daily fees, they must have reasonable caps:

Oregon example (legal daily fees):

• Flat fee cap: 5% of rent
• Daily fee cap: 6% of flat fee OR 5% of rent total
• Result: Limited accumulation prevents punitive amounts

Prohibited (struck down in Sun Ridge Investors v. Parker, OK 1998):

• $5/day with no cap (reached $150 after 30 days on $500 rent)
• Court ruled: No evidence of actual damages; clearly punitive

Sources: Oregon Revised Statutes § 90.260, Sun Ridge Investors v. Parker, 956 P.2d 876

5. Discriminatory or Selective Fees

You cannot charge different late fees to different tenants based on protected characteristics:

Illegal practices:

• Higher fees for families with children (Fair Housing Act violation)
• Lower fees for certain racial/ethnic groups (discrimination)
• Waiving fees for some tenants but not others without objective criteria

Legal selective application:

• Waiving fees for tenants with documented COVID-19 hardship (applied consistently)
• Payment plans for elderly/disabled tenants (reasonable accommodation)
• First-time late payment forgiveness (applied to all tenants)

Source: Fair Housing Act, HUD Fair Housing Guidance

6. Fees Without Written Lease Authorization

All 50 states require late fees to be in the written lease. You cannot:

• Add fees verbally after lease signing
• Implement fees mid-lease without amendment
• Charge fees higher than lease specifies (even if under state cap)

New York special rule: For rent-stabilized units, late fees must be in the initial vacancy lease—you cannot add them to renewal leases.

Source: NY DHCR Operational Bulletin 2019-1

Eviction and Collection Restrictions

States Where You CANNOT Evict for Unpaid Late Fees

Several jurisdictions prohibit eviction solely for late fee nonpayment:

• California: Cannot include late fees in 3-Day Notice to Pay or Quit
• New York: Late fees not grounds for nonpayment eviction
• Washington D.C.: Prohibited per Late Fee Fairness Act
• Colorado: Cannot evict solely for unpaid fees per SB 173
• New Jersey: Only if lease explicitly defines fees as "rent" (rarely upheld)

Alternative collection methods:

• Small claims court lawsuit
• Security deposit deduction (with proper itemization)
• Collection agency referral
• Separate civil suit

Sources: CA Code of Civil Procedure § 1161, NY RPL, DC Code, CO SB 173

Security Deposit Deduction Requirements

You CAN deduct unpaid late fees from security deposits, but must follow strict procedures:

California requirements:

• Itemized statement within 21 days of move-out
• Receipts/invoices for deductions exceeding $126
• Proof fees were properly assessed per lease
• Penalty for violations: Up to 2× security deposit

New York requirements:

• Itemized statement within 14 days (or forfeiture of deduction rights)
• Proof of lease clause authorization
• Evidence fees weren't charged during grace period

Sources: CA Civil Code § 1950.5, NY General Obligations Law § 7-108

Documentation Requirements for Enforceability

To charge late fees successfully, maintain:

Essential Documentation:

1. Signed lease agreement with clear late fee clause including:
   • Specific dollar amount or percentage
   • Grace period terms
   • When fees apply
   • Acknowledgment by tenant (signature)
2. Payment ledger showing:
   • Due dates
   • Dates received
   • Amounts paid
   • Fees assessed with calculation
3. Late payment notices with delivery proof:
   • Certified mail receipts
   • Email delivery confirmations
   • Text message records (if permitted)
4. State law compliance memo:
   • Citation of applicable statute
   • Confirmation fee is within cap
   • Grace period calculation worksheet

California-Specific: Damage Documentation

Due to Orozco v. Casimiro requirements, California landlords should also maintain:

• Mortgage statements showing late fees paid due to tenant's late rent
• Time logs for administrative tasks handling late payment
• Bank statements showing lost interest/opportunity costs
• Evidence that actual damages are "impracticable to calculate"

Local Ordinances: Stricter Than State Law

Cities and counties may impose limits exceeding state protections:

Notable Local Restrictions:

• West Hollywood, CA: 1% cap (vs. CA's reasonableness standard)
• Los Angeles (rent-controlled units): Lesser of $50 or 5%
• Portland, OR: Stricter grace period enforcement
• Seattle, WA: Enhanced tenant notification requirements

Landlord action: Always verify municipal codes before finalizing lease terms.

Alternatives to Traditional Late Fees

Given legal complexities, some landlords adopt alternative approaches:

1. Early Payment Discounts

Instead of penalties, offer incentives:

• "Pay by the 1st, receive $25 discount"
• "On-time payment for 12 months = 1 month free rent"

Advantages: Courts view discounts more favorably than penalties; encourages timely payment; better tenant relations.

2. Stepped Rent (With Caution)

Higher base rent with on-time payment credit:

• Base rent: $1,075
• On-time credit: -$75
• Effective rent if on time: $1,000

Warning: Some courts treat this as a disguised late fee. Consult legal counsel before implementing.

3. Rental Payment Plans

For tenants facing hardship, structured payment plans preserve relationships:

• Split overdue amount over 3-6 months
• Waive late fees if plan is followed
• Document agreement in writing

Benefit: Recovers rent without eviction costs; maintains occupancy.

Recent Legislative Trends (2024-2025)

Tenant-Friendly Reforms:

• Colorado SB 173 (2023): Capped fees at $50/5%, mandated 7-day grace, prohibited eviction for fees
• Proposed NY legislation: Bills to ban late fees entirely (unlikely to pass, but shows trend)
• DC Late Fee Fairness Act amendments: Strengthened enforcement mechanisms

Landlord-Favorable Developments:

• Texas clarifications: SB 1414 (2019) provided clear 10-12% authorization
• Florida precedents: Courts upholding 20% fees where properly documented

Enforcement Best Practices

Before Charging Fees:

1. Verify grace period has fully expired
2. Confirm fee amount is within state/local caps
3. Check lease for exact language
4. Calculate fee accurately (see calculation guide)
5. Send written late notice before assessing fee

When Challenged:

1. Provide lease clause and fee calculation
2. Show compliance with state cap
3. Demonstrate grace period was respected
4. Offer documentation of costs (if required)
5. Consider mediation before litigation

Conclusion

Landlord rights to charge late fees are substantial but bounded by state caps, grace period requirements, reasonableness standards, and anti-discrimination laws. Understanding these limits protects your financial interests while avoiding legal exposure.

Core principles:

• You CAN charge: Reasonable fees within state caps, administrative costs, interest on overdue amounts
• You CANNOT charge: Fees exceeding caps, fees during grace periods, compounded fees, discriminatory fees, unlimited daily fees
• You MUST have: Written lease authorization, proper documentation, compliance with local ordinances
• You CANNOT evict: For late fees alone in CA, NY, DC, CO, and other protective jurisdictions

Conservative approaches (5% fees, 5-day grace periods, robust documentation) maximize enforceability while maintaining positive tenant relationships. When in doubt, consult a real estate attorney specializing in landlord-tenant law to review your specific lease terms and local requirements.

Last Updated: January 2025. Laws subject to change. This guide is for educational purposes only and does not constitute legal advice.