LATE FEES

A lease's late fee that compounds monthly may or may not be
reasonable; if a court finds it to be unreasonable, it should reform the
late fee provision to reasonably compensate the landlord for late rental
payments.
from meislik.com
"A commercial landlord sought to evict its tenant for non-payment of
rent. The amount of rent allegedly due and owing was derived from past
due rent, penalties for late payment of rent, and fees associated with
utility services, which the lease agreement characterized as additional
rent. At the eviction hearing, the tenant stipulated that these types
of charges were in fact considered additional rent under the lease.
Nonetheless, the lower court concluded that these charges were not
`additional rent' and dismissed the complaint for lack of
subject matter jurisdiction. The Appellate Division disagreed with the
lower court. It found that the lease agreement specifically defined the
charges at issue as additional rent, specifically citing the following
text from the lease:
All rental payments and other charges provided for herein [including
utilities and late payment of rent penalties] shall be paid without set
off, recoupment, counterclaim or abatement of any nature whatsoever.
Rental and other payments shall be made without previous notice or
demand therefor[e] and shall for purposes of Landlord's rights,
including the nonpayment thereof, and for all other purposes for which
the same shall be relevant be deemed additional rent subject to the same
duties and obligations of Tenant with respect thereto and the same
remedies of Landlord for the nonpayment of basic rent.
As best as the Appellate Division could discern, the lower court also
held that even if late payment of rent penalties were deemed
`additional rent,' [the landlord] had (1) waived his right to
collect them; and (2) the late fee provisions in this commercial lease
agreement were unconscionable and unenforceable."
Shaffer v. Tiny Blessings II 2005 WL 3309792 (N.J. Super. App. Div.
2005) (Unpublished) December 8, 2005
A late fee of ten percent was to be assessed on the fifth day of the
following month. Essentially, the ten percent was to be compounded. In
its analysis, the lower court characterized this provision as onerous,
and noted, without specific reference to any authority, that:
`it is the policy of this State ... that [these] sort of
administrative fees need to be in some manner rationally related to the
[landlord's] administrative costs.
The Appellate Division disagreed that this late fee provision was
facially invalid. It pointed out that unlike residential tenancies, the
terms of commercial leases are almost exclusively derived by market
forces. Generally, a commercial landlord is free to negotiate with the
tenant the terms of a lease, including additional rent fees for late
payment of rent.
To the Court, this didn't mean that there need not be a nexus
between the amount of the fee charged, and any additional reasonable
administrative cost incurred by the landlord. A late fee provision in a
commercial lease is, at its essence, a stipulated damages clause. For
that reason, the Court, remanded the matter to the lower court to
develop a record to determine the reasonableness of the late fee
schedule. It ordered that if the lower court found the provision
compounding the late fees to be unreasonable, it should endeavor, to the
extent possible, to reform the contract to fulfill the parties'
original intent that the rent be paid on time and that the landlord be
reasonably compensation for late fees. For more information see: www.houstonrealtyadvisors.net