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At the beginning of August, I mistyped my rent payment, and left 30$ unpaid. Today I discovered that my leasing office has charged me a 50$ initial late fee, and 10$ daily late fees, now totaling over 200$. I'll be talking to them tomorrow, but first I'd like to know where I stand.

I'm renting in Washington, USA, and I was not notified about the late fees.

My lease does include a clause outlining these late fees.

I tried to research applicable laws, but I found several seemingly authoritative but contradictory sources, so I'm asking here.

(The 'I' in the question is a friend, who didn't want to post themselves.)

  • The fact that the fees are outlined in the lease probably constitutes sufficient notice. I suspect that your best bet is to focus on the small amount and the accidental nature of the underpayment (as well as your record as a good tenant who pays promptly, if that is the case) and ask for forgiveness or leniency. – phoog Aug 23 '18 at 18:28
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Late fees are legal in Washington. There is no specific statutory definition of "reasonable" for residential tenancies, just a requirement that a tenant conform to reasonable requirements under RCW 59.18.140. To charge an actual fee, the lease must specifically identify the fee as non-refundable, otherwise under RCW 59.18.285, fees are to be refunded (are treated as part of the deposit). Because there is no specific statute addressing late fees, there is no clear-cut limit on what counts as an unreasonable late fee, but it is probably between 10% and 20% (the former being a reportedly typical amount and an amount charged by the state under RCW 49.70.177; and the latter being the statutory definition of "reasonable" for a storage facility late fee under RCW 19.150.150, also a different fee assessed by the state under RCW 15.13.340).

  • Does the lack of notice change the reasonableness of the late fees? – E.D. Aug 23 '18 at 5:32
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    @E.D.: What do you mean by "lack of notice"? I would think that if the lease contains a clause outlining the late fees, then notice was given. – Michael Seifert Aug 23 '18 at 14:03
  • @Michael Seifert I mean lack of notice of the balance remaining. I agree, they did give notice of the existence of late fees in general. – E.D. Aug 23 '18 at 14:33
  • There is no requirement that a landlord notify the tenant that they are in arrears, fully or partially. This includes checks lost in the mail. – user6726 Aug 23 '18 at 15:14
  • @E.D. The tenant is on notice of the rent due and the due date and the late fee in the lease and is presumed to know the amount of the check written even if it was negligently written in the wrong amount by the tenant in error. Often a 'notice of default" must be given in advance of an eviction, but that is rarely the case for a late fee, although I have had terms requiring notice of imposition of a late fee be inserted in leases on behalf of tenant clients as bargained for terms of a commercial lease. – ohwilleke Aug 23 '18 at 17:24
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Possibly Grounds For Objection

Washington State does not have specific statutes regulating the amount of late fees that can be charged on rental real estate unlike many other states. It is notable, however, that this late fee would exceed the amount allowed in many states that set specific dollar or percentage limitations on late fees.

So, there are two main possible grounds to dispute the validity of this term in your lease, but the first one, because it is more specific, probably controls relative to the other two.

Usury Law Violations

One would be the statute prohibiting usury (i.e. the charging of excessive interest rates on debts). In Washington State, this is R.C.W. Chapter 19.52.

At some point, excessive late fees start to be considered disguised interest charges which if they are above the usury rate are void for violation of that law.

A combination of statutory and case law exceptions may define where that line is drawn. Also, usury rates are often different for different kinds of debts and are often different in the consumer and non-consumer context.

Even if this late fee does not facially violate state usury laws because it would not be too high in a case where the entire rent payment was not made, it might be an as applied violation in the case of a late fee on a large rent payments that was only minimally short, as in this case.

The usury law contains an exception for consumer leases (which isn't entirely clear upon whether this applies to residential real property leases or only leases of personal property) at R.C.W. 19.52.010, which states:

(2) A lease shall not be considered a loan or forbearance for the purposes of this chapter if:

(a) It constitutes a "consumer lease" as defined in RCW 63.10.020;

(b) It constitutes a lease-purchase agreement under chapter 63.19 RCW; or

(c) It would constitute such "consumer lease" but for the fact that: (i) The lessee was not a natural person; (ii) The lease was not primarily for personal, family, or household purposes; or (iii) The total contractual obligation exceeded twenty-five thousand dollars.

The fact that a "consumer lease" is defined under R.C.W. 63.10.020(4) as a lease of personal property favors an interpretation that the usury statute is not intended to apply to residential real property leases although it is not definitive on that point because that kind of lease is excluded merely because it is regulated in a separate statute. R.C.W. 63.10.020(4) defines a consumer lease as follows:

(4) The term "consumer lease" means a contract of lease or bailment for the use of personal property by a natural person for a period of time exceeding four months, and for a total contractual obligation not exceeding twenty-five thousand dollars, primarily for personal, family, or household purposes, whether or not the lessee has the option to purchase or otherwise become the owner of the property at the expiration of the lease, except that such term shall not include any lease which meets the definition of a retail installment contract under RCW 63.14.010 or the definition of a lease-purchase agreement under chapter 63.19 RCW. The twenty-five thousand dollar total contractual obligation in this subsection shall not apply to consumer leases of motor vehicles. The inclusion in a lease of a provision whereby the lessee's or lessor's liability, at the end of the lease period or upon an earlier termination, is based on the value of the leased property at that time, shall not be deemed to make the transaction other than a consumer lease. The term "consumer lease" does not include a lease for agricultural, business, or commercial purposes, or to a government or governmental agency or instrumentality, or to an organization.

On the other hand, there is no clear statutory exception to usury laws in Washington State for amounts overdue on real estate leases either.

Common Law Restrictions On Liquidated Damages Clauses

The other would be the common law doctrine distinguishing between "liquidated damages" and "penalties". In the common law of contracts, if there is harm from a breach of the contract that is difficult to quantify (e.g. in the case of a landlord, the possible need to get a short term loan to handle the mortgage payment on the property, or the need to hire someone to send a demand letter to the tenant to make a payment and possibly review the lease and confer with a lawyer even if the late payment is ultimately paid before a lawsuit is filed, the harm to a landlord if everyone routinely pays a few days late), it is permissible to set a liquidated damages penalty to address that difficult to quantify harm so long as it is reasonable and proportionate and contractually agreed to by the parties.

But, if there is no difficulty involved in quantifying damages and the liquidated damages clause exceeds this amount, or if the liquidated damage amount is disproportionate to the difficult to exactly quantify harm, it is void as a "penalty" because it violates public policy for private party contracts to impose penalties (which are usually the exclusive right of the state to impose) without statutory authorization.

This validity analysis is typically conducted on a case by case basis, so precedents on this issue have value only if they are factually similar.

I have no reviewed Washington case law on this point to determine if there are cases addressing similar fact patterns.

This late fee analysis probably would be informed by the statutory authorization for late fees for leases of self-storage units, which states:

Any late fee charged by the owner shall be provided for in the rental agreement. No late fee shall be collected unless it is written in the rental agreement or as an addendum to such agreement. An owner may impose a reasonable late fee for each month an occupant does not pay rent when due. A late fee of twenty dollars or twenty percent of the monthly rental amount, whichever is greater, for each late rental payment shall be deemed reasonable, and shall not constitute a penalty.

R.C.W. 19.150.150.

This statute seems to reinforce the general analysis that a one time late fee may be valid under general principles as a liquidated damages amount, but that the daily additional late fee is on weaker grounds as a liquidated damages amount because it looks functionally a lot more like interest in excess of the usury rate.

But, the law isn't always mathematical or logical, and often de minimis amounts that are an extraordinarily high percentage interest rate equivalent are still tolerated. So, this would be, at best, a close call under a liquidated damages/penalty analysis because the absolute amount of $10 a day is modest relative to the total rent obligation for a month, even though it is high relative to the amount of the actual shortfall. Court's often allow liquidate damages provisions that provide only rough justice.

Lack Of Notice Is Not Defense Unless The Lease Expressly Provides For It

Notice of imposition of a late fee is not required, unless the lease expressly provides for notice to be given before a late fee is imposed which would be unusual but not entirely unheard of (I have written such clauses in large commercial leases on behalf of tenant clients).

The presence of the amount of the monthly rent, the date the rent is due, the existence of the late fee, and the means by which the late fee is determined, is sufficient. The tenant has notice of the amount paid and would not be relieved of his own negligence for failing to notice a discrepancy between the amount paid and the amount owed when he wrote the check.

Often notice would be required under a lease, however, before commencing an eviction based upon failure to pay a late fee or being short on rent, often with some opportunity to cure that default by paying the rent shortfall and paying the late fee.

The list of matters for which the landlord is statutorily required to give notice before enforcing is found at R.C.W. 59.18.130.

Gut Reaction

It wouldn't hurt to ask the landlord to waive some or all of the late fee arising from an honest mistake. But, a couple of hundred dollar late fee incurred before the shortfall was paid would probably hold up in court.

I am not convinced that RCW 59.18.140 (requiring that a tenant honor reasonable requirements) is applicable to late fees as that statute seems to pertain to use of the premises. Likewise I am not sure that RCW 59.18.285 (requiring non-refundable fees to be disclosed in writing) applies as that seems to pertain to application fees before a lease is signed.

Late fees of 5% to 20% of the total amount of the payment due (even if the shortfall is a fraction of that amount) are customary (or at least, not unusual) in leases.

But, the fact that additional amounts are assessed each day, in particular, makes those amounts look a lot like interest, so an usury law analysis could invalidate some portion of those daily additional amounts in particular, particularly if this is a residential lease. Honestly, however, the cost of usury litigation and future conflict with the landlord would make it impracticable to fight a $200 late fee, some of which is probably valid, on this ground.

Often, a small amount like $150 or $200 relative to the total amount of rent due under the lease, would not be considered excessive liquidated damages even if on a strict mathematical basis, the percentage of deemed interest rate is huge (the same somewhat illogical reasoning is applied to set up fees in payday and title loans for small dollar amounts).

On the other hand, if the late fee had grown to thousands of dollars on a $30 shortfall, a court would probably find it to have become unreasonable.

It is also worth noting that if the late fee is paid, that a suit to recover it since it was not actually owed because it is illegally imposed is not allowed in Washington State. So, if it is disputed, it must be disputed up front and not in a refund suit after paying it which would avoid the risk of an eviction action over $230.

  • $200 in interest on $30 over 22 days would be an annual rate of ~11,000%. Pretty wild if you think of it as interest. – Hart CO Aug 23 '18 at 17:42
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    @HartCO If you think about $50 as being property liquidated damages for a one time administrative processing time amount and not for the time value of the money and proportionate to the total amount due under the lease, that portion doesn't count. But, the per day amount does look more like a time value of the money amount since the administrative expense shouldn't be proportionate to that amount, and as you note, $10 per day is a lot for $30 and would violate the usury amount. But, the law frequently declines to look at a pure mathematical percentage when looking at small amounts of money. – ohwilleke Aug 23 '18 at 17:48
  • @HartCO In the same vein, the rule of thumb set forth by the U.S. Supreme Court for maximum punitive damages is triple actual damages for reasonably significant amounts, but it expressly recognizes that much greater percentages can be allowed as punitive damage when the actual damages are minimal to adequately punish misconduct. – ohwilleke Aug 23 '18 at 17:49
  • I didn't imagine it would actually be considered interest, most leases that I've seen/written limit the daily charges to a set number of days before stopping the late fees and starting eviction process, which I thought (hoped) was enough to prevent the fees from being viewed as interest, but I'm not a law guy, just a landlord guy. – Hart CO Aug 23 '18 at 17:57
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    @Hart CO A limit on the number of days would certainly weigh in favor of the landlord, but the Question does not indicate that there is such a limitation in this particular lease. It also doesn't tell use the total amount of the monthly rent amount and this looks less like a penalty if that amount is $15,250 (a recent commercial lease I've dealt with) than if it is $290 a month. – ohwilleke Aug 23 '18 at 18:04

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