The Endless Late Fee Cycle: Enforceable or Not?

There is a common legal issue and problem that arises in the residential property management business. It involves situations when a tenant owes a late fee for a given month and pays the base rent for the following months but does not “catch up” with the late fee, which can result in a vicious cycle of accruing late fees in the following months. In this situation, late fees can add up to a considerable amount of money. Here is the issue: Whether a landlord is able to charge late fees of a given month into following month? or is such a perpetual late fee provision unconscionable and thus unenforceable?

First, let’s look at the lease.

Residential leases typically impose a late fee on a tenant how pays rent late. The amount of late fee varies, but it is common for a lease to impose a base late fee, e.g. $25.00. Sometimes the lease will impose a fee for each day rent remains late after the due date, e.g. $5.00 for each day.

Next, a lease will typically provide that all fees owed to the landlord are considered “additional rent”. When the lease defines late fees as “additional rent”, the landlord can include unpaid late fees in a Notice to Pay rent, and if the tenant fails to pay the late fee, the landlord would have grounds to file an eviction for non-payment of rent.

Next, a lease can define how payments are applied when paid. For example, the lease can provide that payments are to be applied in priority as follows: first, to late fees and other fees owed; next to back rent owed; and next to current month’s rent.

Second, let’s look at the scenario.

With the lease provisions above, a tenant can find himself in a bad situation. Let’s say Mr. Tenant’s rent is $1,000 each month, and a $50.00 plus $5.00 per day late fee is provided in the lease. Mr. Tenant pays his rent for the month of January late, and the late fees accrued for that month was $100.00. Ms. Landlord (property manager) does not send Mr. Tenant a formal letter or notice informing the Tenant that he has a January $100.00 late fee, has applied the late fee as “additional rent” and expects the Tenant to pay the $100.00 along with his base rent on February 1.

Mr. Tenant pays his base rent of $1,000 on February 1 but does not pay the January $100.00 late fee. Ms. Landlord deems February’s rent “late” because she applied Mr. Tenant’s payment in February towards his January late fee, leaving a $100 balance for February’s rent. Ms. Landlord now deems the tenant’s February rent payment late and accrues $5.00 per day for February’s late rent.

This cycle continues for months, and the late fees have accrued to a large number.

Third, let’s look at how the landlord reaches the point of giving the tenant a legal demand to pay the “additional rent” or face eviction.

The tenant has been a good tenant for, say, 6 months, but the homeowner learns that late fees have been accruing since January and has reached many hundreds of dollars. The property management agreement provided that the homeowner is entitled to a percentage of the late fees, so he tells the property manager that he wants the Tenant to pay the late fees immediately, or else face eviction.

The property manager does not agree with the homeowner’s take on the situation, and was actually intending to reduce the late fees because she likes the Tenant. But the homeowner insists: deliver a Notice to Pay all of the late fees or face eviction. The property manager, not wanting to lose business, complies with the homeowner’s demand and delivers a Notice to Pay the late fees to the Tenant.

The Tenant gets home from work and sees the Notice demanding that he pay hundreds of dollars of late fees (that have accrued every month) or else face eviction. The Tenant is offended and shocked at the same time. Enraged, he calls the property manager and demands an explanation. The property manager explains that his rent payments have been applied to late payments first each month, and as such, he has been late every month since January.

Mr. Tenant does not believe he should be required to pay what he believes are exorbitant late fees, especially since he paid rent timely each month after January and since he has been a good tenant. So, he does not comply with the Notice to Pay. The property manager files an eviction alleging that the Tenant owed late fees since January, had not paid them, and did not comply with the Notice to Pay.

The Tenant files an answer to the Complaint and posts the disputed amount of late fees into the court registry, thus entitling him to a contested hearing. The Tenant defends himself on several grounds, one of which is that the perpetual late fees is unconscionable in violation of FS 83.45.

What would a judge do?

Well, one court in Broward County ruled on a similar issue in Buckholz v. King, 17 Fla. L. Weekly Supp. 1258a (Broward County 2010) and ruled that late fees can only be applied in the month that rent was actually late. One legal commentator said about this case,

A lease stated that the landlord would be entitled to a late fee of $10 a day for every day that the rent was late and an additional $10 a day for every day the utilities were not timely paid. The trial court found that the $10 a day late fee itself was not excessive, based on $800 a month rent, but that allowing the late fees to continue for more than a period of one month, made the late fee clause unconscionable. Instead of striking the late fee clause in its entirety, the trial court limited late fees to $10 a day for each month and permitted $660 late fees for back rent and $210 for utilities.

Hauser, James C., 2-12 Florida Residential Landlord Tenant Manual § 12.02 (2017). Another court in Escambia County ruled similarly in Carrithers v. Bender, 5 Fla. L. Weekly Supp. 121 (Fla. Escambia County Ct. 1997). In that case,

[t]he park owner interpreted the lease to mean that if the homeowner was late with his or her rent for more than one month, the park owner could add an additional $15 to the balance of the homeowner’s account for each month where the tenant had an outstanding balance due. However, a county court ruled that based on the wording of the lease, the $15 could only be charged for the first month. Because the amount demanded in the notice was not correct, the trial court denied the eviction.

Id.; see also Christiano v. Robinson, 20 Fla. L. Weekly Supp. 146c (Orange County 2012).

Based on the King and Bender cases, landlords can anticipate that Florida courts may interpret any perpetual late fees to be unconscionable and thus, any attempt to evict for nonpayment of the perpetual late fees (as additional rent) or claiming the same from the security deposit could be struck by the court. So, in our hypothetical situation above with Mr. Tenant and Ms. Landlord, the tenant may succeed in defending the eviction, costing the landlord much time, money and energy, not to mention the possibility of having to pay the tenant’s attorney’s fees and costs.

Conclusion

Based on the Florida court cases above, the landlord’s best practice is to restrict late fees to the month in which the tenant was late, and not continue to roll over the late fees into the following months.

Suggestion

  1. If you charge a late fee (e.g. January), deliver notice in writing to the Tenant in the same month that late fees are owed and that the next month’s rent (February) will first be applied to the past due late fees and then to the current rent owed.
  2. If Tenant does not pay late fees (for January) the next month (February) but pays the full month’s rent (February), you should choose to either evict for non-payment of late fees (assuming the lease provides for “late fees as added rent”) or attempt to settle the previous month’s late fees owed.
  3. Do not continue charging new late fees each month if the previous late dues were not paid.