John Roska: Late fee by landlord must be in lease, can't be penalty
Q: Is there any limit on how much a landlord can charge for a late fee? Is $5 a day legal? Is a grace period required before a late fee can be charged?
A: There's no specific limit a landlord's late charge. It just can't be a penalty. And unless you live in a mobile home park, no grace period is required.
There's no late fee at all unless there's a written lease. Oral leases are valid and enforceable, but only as to terms actually agreed upon (like the amount of rent or deposit), and some basic terms implied by law (the tenant's "right of quiet enjoyment, and that the place is habitable). People with oral leases rarely agree on a late charge.
So: no late fee unless it's in a written lease.
Then, the only limit on late fees is kind of vague. It can't be a penalty. It's not supposed to punish you for paying late, or coerce you into paying on time. It's just supposed to compensate the landlord for the cost of your late payment.
That cost consists of things like the interest or profit the landlord loses when they can't use your money, and the administrative cost of bugging you for payment (calls, notices, etc.)
Those costs can't always be figured precisely, so it's OK for a late fee to be a rough estimate. In legal terms, that's called "liquidated damages." It's an amount the parties to a contract agree to ahead of time, when the actual amount is uncertain, or hard to figure.
Unfortunately, the dividing line between a legal liquidated damage clause and an illegal penalty isn't clear. But a $5 a day late fee could be a penalty, especially if it keeps increasing while a new late fee begins on a new month that's overdue.
A 5 percent late fee is probably reasonable. That's the limit in the Illinois law on car loans, and the limit in Chicago's landlord-tenant ordinance. And one case says a 10 percent late fee can be too much.
If landlord and tenant can't resolve a dispute over late fees by agreement, the alternative is to go to court and let a judge decide. You could sue to recover the late fees you've already paid, or to simply have the fee declared illegal. Or you could take the more risky move of refusing to pay them, and defending in court if you're sued for that nonpayment.
Otherwise, the only restriction Illinois law imposes on late fees for rent is if you live in a mobile home park. And that only says that a landlord can't charge a late fee until the rent's five days late.
A grace period before a late fee kicks in doesn't mean you're not late if you pay after the due date. You're still late — there's just no fee for being late. And even without a late fee, late payment can be a breach that landlords can try to evict you for — especially if it's repeated.
John Roska is a lawyer with Land of Lincoln Legal Assistance Foundation. You can send your questions to The Law Q&A, 302 N. First St., Champaign, IL 61820. Questions may be edited for space.