Late Fee Laws by State

How late-fee limits work

A late fee is a charge for paying rent after the due date. It compensates the landlord for the cost of late payment: extra bookkeeping, follow-up and the cost of waiting for money. States control these fees in three main ways: a percentage of rent, a flat dollar ceiling, or a general rule that the fee must be reasonable. Many states also say when the first fee may be charged.

Percentage caps

Some statutes cap the fee at a percentage of rent. Read the wording closely. The percentage may apply to the full monthly rent or only the overdue amount. It may cover one charge or the total for the month. Some states set different percentages for different building sizes.

Example, Colorado: A late fee cannot exceed the greater of $50 or 5% of the past-due rent, must be stated in the lease, and cannot be charged more than once per late payment beyond that total (C.R.S. § 38-12-105(1)(b), (c), (g)). (C.R.S. § 38-12-105(1)(b))

Flat caps, daily fees and formulas

Other statutes set a dollar ceiling, or combine a dollar amount with a percentage and allow the lower or the higher of the two. Some allow a daily fee with a monthly maximum. When a state uses a formula, the table shows it in full, because a short label would drop conditions that matter.

Example, Arizona: Arizona sets no numeric late-fee cap, but a landlord may only collect a late fee that is reasonable and set forth in a written rental agreement (A.R.S. § 33-1368(B)). (A.R.S. § 33-1368(B))

The "reasonable" standard

No statutory cap does not mean no limit. Courts generally enforce a late fee only as an advance estimate of what late payment actually costs the landlord, often called liquidated damages. A fee that is out of proportion to those costs can be treated as a penalty and thrown out. Some states write this reasonableness test into their statutes instead of a number. In others it comes from court decisions.

For a landlord in a state without a number, the practical question is whether you could explain the fee as compensation if a tenant challenged it. A fee that is modest compared with the rent, and that you charge consistently, is easier to defend than a large one.

Example, California: California sets no numeric late-fee cap, but a residential late fee is enforceable only if it is a reasonable estimate of the landlord's actual costs from late payment that would be hard to calculate, so keep fees modest and document how you set them (Cal. Civ. Code § 1671(d); Orozco v. Casimiro (2004) 121 Cal.App.4th Supp. 7). (Cal. Civ. Code § 1671(c)(2), (d))

Grace periods and when a fee can first be charged

A grace period is the number of days after the due date before a late fee may be charged. Some states set a minimum by statute. In many others, any grace period comes only from the lease. If your lease promises a longer grace period than the state requires, honor the lease.

Counting matters. Check whether the due date itself counts as day one, whether the period is in calendar or business days, and what happens when the last day falls on a weekend or holiday. Some states also require written notice of the fee, or bar a fee until rent is a set number of days overdue. The statute linked in your state's row has the exact wording.

Example, Colorado: Do not charge a late fee until rent is at least seven calendar days late (C.R.S. § 38-12-105(1)(a)). (C.R.S. § 38-12-105(1)(a))

The fee has to be in the lease

A late fee is a contract term. If the written lease does not state the fee and when it applies, courts in many states will not let a landlord add one later. Changing the fee during a fixed-term lease generally needs the tenant's agreement. For a month-to-month tenancy, it generally needs proper written notice.

State the fee as a specific amount or formula, not "up to" a figure, and give the exact day it is charged. Fees for bounced payments are a separate charge and should be listed separately.

No fees on fees

Charge the late fee on overdue rent only. Charging a late fee on an unpaid late fee is barred in some states and viewed poorly by courts in others. Applying a tenant's payment to fees first, so that rent shows as unpaid and draws another fee, can also be challenged.

Late fees and evictions are a separate issue. In some states an unpaid late fee is not treated as rent for a nonpayment eviction notice. Keep fees on their own line in your ledger and on any notice you serve.

Subsidized and regulated housing

Different rules can apply to housing with federal or state subsidies, tax-credit properties, manufactured-home communities and units under local rent regulation. Program rules, or a lease form the program requires, may limit late fees more strictly than state law. If your unit is in one of these programs, follow the program's rules as well as the state's.

Common mistakes

• Charging a fee the lease does not mention. If it is not in the signed lease, it is usually not collectable.
• Charging too early. A fee charged before the grace period ends, or counted from the wrong day, can be invalid.
• Exceeding the cap by stacking. A flat fee plus a daily fee can push the total past the limit. Check the total for the month, not each charge.
• Daily fees with no ceiling. An uncapped daily fee can grow until it looks like a penalty, even where no statute sets a number.
• Treating fees as rent. Listing late fees as rent on a nonpayment notice can make the notice defective in some states.
• Uneven enforcement. Waiving fees for some tenants and not others weakens the fee as a lease term and can raise fair-housing questions.

What to put in the lease

• The rent amount, the due date and the accepted payment methods.
• The grace period, if any, and how its days are counted.
• The exact late fee (amount or formula), when it is charged, and any monthly maximum.
• Any returned-payment fee, listed separately from the late fee.
• How partial payments are applied.

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