Though provisions about late fees are a necessary part of any of lease, there is some ambiguity surrounding them. For non-stabilized units, some landlords charge $100 after the 10th of the month. Some charge $50. Some landlords even charge as little as $25 if the rent is not received by the 15th.
The point here is that landlords have a lot of discretion when it comes to how much they may chose to charge for late payments, as case law only prohibits landlords from charging fees that are “unconscionable” or “disproportionate to reasonable damages.”
The language that defines how much landlords may charge stabilized tenants, however, is a bit more straightforward and can be used as a means of guidance to determine what constitutes reasonable damages for non-stabilized tenants. For stabilized units, Department of Housing and Community Renewal Fact Sheet #44 states that late fees are lawful “where a clause in the initial vacancy lease allows for them to be charged by a certain specific date and the late fees are no more than 5% of the monthly rent currently being charged and collected.” The Fact Sheet adds that, “Preferential rents, which may also be referred to as ‘on-time rent’, that are conditioned on prompt payment of rent or terminate upon late payment of rent are not allowed.”
To be on the safe side, landlords should charge no more than 5% of the rent for late fees. Furthermore, leases need to state when the late fee takes effect. Most importantly, landlords cannot use preferential rent as a carrot and the legal rent as a stick to ensure timely payment. Preferential rent is not a solid that you're doing to the tenant that you can revoke if they fail to pay you on time. It is the rent, and you are not allowed to change it for the course of the lease. The late fee is a separate penalty tenants incur when they fail to pay on time. Once again, this fee can not exceed 5% of the rent.
This is advice that a Queens landlord chose to ignore and it is the subject of today's case of the week, the details of which were provided by Landlord v. Tenant. The landlord charged a stabilized tenant a preferential rent of $1,956. When the tenant signed the lease, the landlord included an attached Preferential Rent Rider that included a provision stating that if the rent was not received by the 15th, the legal rent of $2,884.88 would be considered due. When the tenant failed to pay the rent on time, the landlord effectively demanded the legal rent or a late fee in the amount of $928.88 (47.49% of the rent).
By an order filed on March 2, 2018, Judge Clifton Nembhard of Queens Landlord Tenant Court sided with the respondent’s attorney, who argued that “the rent demand is defective because it fails to demand the preferential rent as per the lease, but instead seeks the legal rent.” The judge found this to be true, and ruled that “case law prohibits enforcement of the terms in the rider.” The petition for nonpayment was dismissed.
What to take away: You should have a provision in your lease that clearly spells out how much tenants owe should they fail to pay the rent on time. If you want to play it safe, do not charge them more than 5% of the rent in late fees.
To read more about this case, click here.