There is a new law in Washington, DC that affects how much residential landlords can charge their tenants in late fees. The Rental Housing Late Fee Fairness Amendment Act of 2016 is now in effect. The text of the law can be read here: Rental Housing Late Fee Fairness Amendment Act of 2016.
Some highlights of the law include:
• Late fees are limited to 5% of the full amount of rent due “by a tenant.” The phrase “by a tenant” seems to preclude a landlord from charging 5% of the total rent when a portion of the rent is paid by a subsidy. It is unclear what amount a landlord can charge as a late fee in the event of a partial payment.
• The written lease agreement must inform the tenant of the maximum amount of the late fee that may be charged pursuant to the agreement. This could be a very important issue, because no existing leases could possibly contain this language. Landlords should provide each tenant an addendum to satisfy this provision.
• There must be a 5-day grace period before the late fee is applied.
• A landlord cannot charge interest on a late fee.
• A landlord cannot apply future rent payments to late fees. This is a large departure from the accounting that most landlords use, whereby a new payment is applied to the prior balance, including previously-incurred late fees. This could become an accounting burden and accounting software should be updated to comply with this provision.
• A landlord cannot impose more than one late fee for one late payment. This is also a large departure from the accounting that most landlords currently employ, whereby a late fee is charged each month until the tenant reaches a zero balance.
• A landlord cannot evict a tenant on the basis of nonpayment of late fees. This, too, is a big change. Although judges routinely limit late fees for eviction purposes, late fees have always been included in the Trans Lux, or redemption, amount. As of January 8, 2017, the Superior Court of DC, Landlord and Tenant Branch, is rejecting any and all late fees. This is very important, as landlords need to ensure they are not evicting tenants based upon nonpayment of late fees.
• A landlord cannot collect late fees based upon a subsidy’s late payment.
One important aspect of the law is that a landlord’s failure to comply can come with severe penalties. Any housing provider who knowingly or willfully violates this law is liable for the amount the late fees charged exceed the permissible late fees, or treble that amount in the event of bad faith. Landlords can also be fined between $100 and $5,000 for each violation.
The law does allow landlords to issue invoices for unpaid late fees. If the tenant does not pay the late fees, the landlord may deduct from the tenant’s security deposit at the conclusion of the tenancy.
Landlords should certainly reconsider accounting principles in light of these changes, as ledgers that combine all charges may lead to problems down the road. Please contact us if there are any questions about this new law, or to discuss DC Landlord and Tenant and eviction law in general.
