Landlord Must Answer for Late Fee Policy

by | Jun 4, 2018 | Rental Property Management Tips

Landlord Facing Class-Action Lawsuit Over Late Fees

A major corporate landlord will have to answer for a late-fee policy that tenants say is illegal.

According to a report, the landlord owns 82,500 single-family units nationwide, making it the country’s largest single-family landlord. An estimated 12,500 of those homes are in California, where a lawsuit over the company’s late-fee policy was filed last week. It is expected that the attorneys filing the action will seek class-action status. If that is approved by the court, it could exponentially increase any damages that might be awarded.

The primary issue in the case is a mandatory $95 late fee that is assessed if rent is late, even by one hour, according to the report.

The tenant bringing the complaint claims that he was assessed the late fee although the landlord’s electronic payment portal was out of service and he was forced to submit a check.

Later, his rent check was rejected because it did not include the late fee amount. Additional late fees then were stacked for each month the tenant didn’t pay the original assessment, even though subsequent rent payments were paid on time.

The tenant is challenging the legality of the late fees amount given how little time passed between the rental due date and assessment of the fees, and because the fees were cumulative, which lawyers say bears no relationship to the landlord’s actual losses.

According to the report, the complaint alleges that the landlord represented to its shareholders that the late-fee policy generated a 20 percent increase in profits. That prompted attorneys to include a claim that the landlord’s profit motive injures consumers. While it is not clear how that argument will play out, some states have passed consumer protection statutes that allow private parties to claim civil penalties — in some cases as high as three times the actual damages — along with punitive damages and attorney’s fees.

Late Fees Don’t Guarantee On-Time Rent Payments

Most states regulate late fees. Generally, landlords are prohibited from charging:

An amount that is excessive compared to the landlord’s actual out-of-pocket losses;
Rolled or stacked fees which trigger additional assessments each month; or,
An amount that constitutes a penalty or fine as opposed to compensation for the landlord’s losses.

Due to those limitations, late fees are not a viable incentive for tenants to pay rent on time. In fact, some tenants use late fees like a financing charge, paying other more persistent creditors first, and then paying the landlord when more money comes in. A better incentive for tenants to pay on time is to Report Rent Payments through TVS and Landlord Credit Bureau. That information is shared with a credit reporting agency, so tenants who see the Notice to Tenant in the lease agreement instantly understand the consequences of bad money management.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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