The recent downturn in the economy has substantially impacted the business of residential rentals. As tenants continue to struggle to pay their rents on time, they also continue to incur late fees, thus further depleting their limited resources. The question then becomes whether late fees are allowed, and if so, how much of a late fee can be charged?
When Can the Late Fee be Charged?
In a standard non-payment of rent eviction case, it is clear that the Court’s jurisdiction is limited strictly to the issue of rents. It is therefore necessary for a landlord seeking a late fee as part an eviction mater to demonstrate that there is a written lease setting forth that late fees are “additional rent.” In cases where there is no written lease, or in cases where the written lease does not use the term “additional rent,” the late fee cannot be included as part of the balance that the tenant must pay in order to avoid eviction. It should also be noted that even when there is a written leases calling late fees “additional rent,” the landlord still cannot include that item in cases where the tenant is receiving Federal housing assistance.
Is there a limit to the Late Fee?
With regard to limitations on late fees, there is apparently a difference of opinion among Judges. Several Court decisions have held that a late fee should not be punitive and must reflect the actual “administrative expense” that the creditor incurs in processing the late payment. In the matter of Kuhn v. Hopkins, A-4507-96T1 (App. Div. 1998), the Court ruled that a late fee would not be enforceable if it exceeded the landlord’s actual damages caused by the late payment. To this end, some Judges have enforced a 5% limitation on late fees.
Mandatory Grace Period
Most leases provide for a grace period before a late fee can be imposed. However, even in cases where the lease does not provide for a grace period, N.J.S.A. 2A:42-6.1 provides that certain tenants are automatically afforded a 5 business day grace period before a late fee can be imposed. Under N.J.S.A. 2A:42-6.3, those tenants are limited to those individuals receiving:
1. Social Security old age pensions 2. Railroad Retirement Pensions 3. Other governmental pensions in lieu of Social Security Old Age Pensions 4. Social Security Disability Benefits 5. Supplemental Security Income, or
6. Benefits under Work First New Jersey