< R-t-le-14

I have been reading my new lease and it states that if rent is late, I will be charged $5 extra per day, with a premium of 25% being charged after the rent is late for 30 days. Is this a legitimate term in a lease agreement?

This kind of term is a penalty clause. Whether or not it is legitimate depends upon the amount of the penalty in relation to the whole lease. The law states that a landlord is allowed to claim an amount that is a legitimate pre-estimate of damages, but not a penalty that bears no relation to the actual losses.

In a case with similar facts, a judge found several general legal principles:

• a genuine pre-estimate of damage suffered by the landlord as a result of the non-payment was legal, but a threat designed to frighten the tenant was a penalty and not enforceable by law;
• a sum will be a penalty if it is extravagant and a large amount compared to the most the landlord could expect to lose;
• if the tenant agrees to pay a certain sum of money, and a larger sum if the first sum is not paid, the larger sum is a penalty; and
• in deciding whether something is a penalty or a genuine pre-estimate of damages, you need to look at the whole agreement.

In the case, it was decided that the fee was a penalty, and therefore not legitimate, as it was exorbitant compared to the rent of $325 per month and applied whether the tenant was even $1 short in rent.

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November 2004 More Renting a Place to Live FAQs:

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