What to do when your California tenants pay rent late? Or, nonpayment of rent?
California Rental Agreement
First, look at your written rental agreement. It should contain the following terms:
- The rent;
- When rent due (should also explain when rent due on weekends and holidays);
- How your tenant pays the rent (online, by mail, bank fund transfer, or in-person);
- Accepted methods for paying rent (cash, check, bank transfer, credit or debit card, PayPal, or other methods);
- Extra fee if the rent check bounces;
- Amount of notice landlords required before increasing rents; and
- Consequences for late payments (late fees and lease termination).
California Late Rent Payment Fee Rules
California lawyers disagree about the California late fee rules.
One California lawyer summed it up this way: “A California late rent fee legally is not cut and dry”.
California law allows landlords to charge a late fee. But, the late fee must be reasonable based upon the inconvenience the landlord suffers because of the late payment.
California Bounced Check Fee Rules
California law allows landlords to charge $25 for the first bounced check. Then, $35 for every bounced check afterward.
California State Laws about Late Rent Payment Fees
The leading California appeals court case about late fees called Orozco v. Casimiro, 121 Cal.App.4th Supp. 7 occurred in 2004. The California Court of Appeals ruled in favor of the tenant and voided an automatic late penalty fee of $50 in the lease agreement.
The court concluded the $50 late fee penalty amounted to “liquidated damages”. Under the law, liquidated damages must approximate the actual damages incurred when a late payment occurs.
In other words, liquidated damages must reasonably compensate landlords for the actual harm they go through because of the late payment.
How does a landlord estimate reasonable compensation for the harm caused by a late payment? Loss of time? Emotional distress?
California Tenant Advocates Argue Late Rent Payment Fees Illegal
Some California tenant advocate lawyers point to California Civil Code Section 1671(d) which states that liquidated damages should only amount to the interest on the overdue rent until the time of payment.
California Civil Code Section 3302 also states that failure to pay money requires “interest” on the unpaid money until fully paid.
The California Constitution sets the interest rate at 10% per year.
They also point out that the 10% per year interest rate limit on a $1,000 a month rent amount to only 27 cents per day. A $50 late fee for rent paid 5 days late equals 370% annual interest.
But, these arguments do not show up in any California court decisions.
A Landlord Forum shows how heated the debate about California’s late payment fees gets here.
California Requires Reasonable Late Rent Payment Fees
The bottom line from the Orozco case point to the “reasonableness” of a late payment fee.
Late fees can’t act as “punishment” for paying the rent late. Its legality depends on what paying rent late actually costs the landlord.
Thus, California state law does not place a limit on late rent payment fees. But, they imply that a California landlord may only charge a reasonable estimate on what the late payment costs the landlord.
In 2013, the County of Los Angeles Department of Consumer and Business Affairs issued a bulletin called “Late Fees”. It stated that late rent payment fees of 5% or less of the monthly rent as “considered reasonable”.
Yet, a late fee of 10% or more allows them to assist tenants to challenge the fee.
In 2019, some California eviction lawyers advocate late payment fees at 5% of the rent value. Plus, adding an “extremely late rent fee” of up to 10% after a grace period passes with no rent payment.
Sample Wording for California Rental Agreement about Late Rent Payment Fees
Some California real estate lawyers offer sample wording for late payment fees in lease agreements.
Note, that this is not legal advice, but only sample wording. Consult with a California real estate lawyer about the exact wording for your rental agreements.
“Both the Landlord and Tenant agree that late payments liquidated damages are not practical and impossible to define. Therefore, both the Landlord and Tenant agree that the late fee of $xx equals reasonable liquidated damages for any late payment.”
California Rent Control Ordinances and Late Rent Payment Fees
Currently, 47 California cities and counties enacted rent control ordinances. But, they don’t limit late payment fees. Learn more about them here.
A list of all 47 California local ordinances rents control here.
Also, look up each one’s municipal ordinance here.
We recently published a blog post explaining the new 2019 California Rent Control Law here.
How Long Does a Landlord Wait Before Evicting a Non-Paying Tenant?
The rental agreement should specify when the landlord may begin the eviction process after the tenant fails to pay the rent.
Many California lawyers recommend waiting between 1 and 5 days from the rent due date before serving the tenant a notice.
For instance, let’s say the lease agreement states rent due on the 1st day every month and late on day 5 (end of the grace period). Landlords should serve the 3 Day Notice to Pay Rent or Quit on the 2nd day. Then, the landlord may start the eviction after the 5th day grace period ends.
Also, landlords may start evictions if the tenant fails to pay the late payment fee if the lease agreement says so.
Grace periods not required in California.
Many landlords offer a grace period to pay rent as a gesture of goodwill to give tenants extra time to pay rents.
Three Day Notice to Pay Rent or Quit
When the tenant doesn’t pay the rent on time a landlord may serve the tenant with a three-day notice. After the 3rd day, if the tenant does not pay the landlord may begin eviction proceedings.
What Information Included in the Three Day Pay Rent or Quit Notice?
Every written three-day notice to pay rent or quit must include:
- Name and address of the tenant;
- Date notice served on the tenant;
- The total amount of rent owed;
- A claim that the tenant owes rent requiring full payment inside 3 days or the landlord files an eviction lawsuit;
- Name, phone number, and address of the person accepting the rent payment (must include the days and hours available to accept rent); and
- Certificate of Service explaining how the notice served on the tenant.
How to Serve the Three Day Notice on the Tenant
Several options exist to give the three-day notice to the tenant:
- Landlord gives notice to the tenant at either the rental location or place of business of the tenant; or
- If unable to find the tenant, the landlord gives the notice to a person of suitable age at either the tenant’s place of business or the rental location; or
- If neither option 1 or 2 works, the landlord posts the notice on the front door of the rental unit and mails a copy to the tenant.
How Tenant Responds to the Three Day Notice
Tenants respond to the three-day notice in three ways:
- Tenant pays the rent fully within the three days; or
- Tenant moves out within the three days (if rent was not paid the landlord uses the security deposit to cover the rent and sues the tenant for unpaid amounts); or
- The tenant does nothing. Thus, the landlord must proceed with the eviction after the three days.
The landlord goes to court and must win the lawsuit before evicting the tenant.
A judge conducts a hearing to receive evidence and hear witnesses, the landlord, and the tenant. If the judge rules favoring the landlord he or she gets a “Writ of Possession”. This writ authorizes the local sheriff to evict the tenant.
Landlords must use the sheriff. Landlords should never personally or use others to evict a tenant.
It’s illegal for a landlord to force a tenant out by cutting off the electricity or changing the locks. Any of these acts result in the ability of the tenant to sue the landlord for damages.
Learn more about the California illegal eviction process here.
Tenant Continues to Owe Rent Up to Day of Eviction
While the eviction process may take weeks or months know that the tenant continues to owe rent.
The law requires tenants to pay the rent until the day they move out.
What to do When Your California Tenants Pay Rent Late Conclusion
Hopefully, we answered the question: What to do when your California tenants pay rent late?
Preparing a strongly worded rental agreement becomes your first line of defense. It should clearly state what late payment fees you impose and when they take effect.
We also showed you how lawyers disagree about the California laws regarding late rent fees. As one California lawyer pointed out, it’s not cut and dry.
While 47 California cities and counties enacted rent control ordinances they don’t limit late payment fees.
Also, rental late fees can’t “penalize” tenants and must be “reasonable”.
In a nutshell: Late fees must reasonably compensate landlords for the actual harm they go through because of the late payment.
But, California law clearly states the penalties for rent checks that bounce.
Landlords may serve a three-day notice to pay the rent or quit any time after the due date or grace period (if one provided).
After the third day if the rent not paid fully landlords may begin the eviction process. This entails filing an “unlawful detainer” lawsuit with the superior court.
If the tenant wins, he or she remains on your property. Landlords who win receive a “Writ of Possession” signed by the judge. Take the writ to the sheriff’s office who will send an officer to evict the tenant.
Never try to evict the tenant yourself. Let the sheriff handle the eviction.
Or, let us handle the entire process to save you time and stress.
Contact Us for all your property management services in the Greater San Diego Area.
Steven Rich, MBA – Guest Blogger
We hope you liked “What to do When Your California Tenants Pay Rent Late Conclusion” For more articles on property management check out our other blogs here.
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