It seems that every landlord I know is aware of their right to charge late fees, but they all have a different idea about what that actually entails.  Questions often arise as to what amount can be charged, when the charges can begin and whether there are any restrictions on late fees.  I was recently asked by an AZREIA member about information they had read on a national website in which the author argued that under A.R.S. § 33-361, Arizona requires that a grace period be given before late fees can accrue.  First, this is patently incorrect.  Not only does A.R.S. § 33-361 not require a grace period, it is part of the general Landlord Tenant Laws, and has no bearing on the Residential Landlord Tenant Act (A.R.S. § 33-1301 et seq.)  Second, this highlights the importance of doing research, but making sure that you can rely on the information you are reading.  You should always talk to local counsel when dealing with state specific questions.  (That is another article entirely.)

The only mention of the term “late fees” in the Residential Act is in A.R.S. § 33-1377 which provides that late fees must be paid by the tenant as “set forth in a written rental agreement” and must be paid to reinstate the lease when rent is late.  A.R.S. § 33-1314 provides that “the landlord and tenant may include in a rental agreement terms and conditions not prohibited by this chapter or any other rule of law including rent, term of the agreement and other provisions governing the rights and obligations of the parties.”  These statutes make it clear that landlords have a right to charge late fees, but there is no guidance as to what the charges are to be.  Like many other things in the landlord tenant arena, what is acceptable is developed over decades of practice.

First and foremost, as referenced in above, late fees can only be charged by a landlord if there is a specific provision allowing them in a written lease agreement.  If you only have an oral agreement with the tenant or if the tenant never signed the lease agreement, then you can not charge late fees.

The next question is: what do you charge for late fees?  There is no right answer to this, but all late fees must be reasonable and courts have the inherent power to reduce late fees if they find them to be unreasonable or if they shock the conscience of the court.  Generally, reasonable late fees on standard rentals will vary somewhere between $5.00 – $10.00 day.  Of course, this is a generalization and such numbers would be very low if it’s a $3,500/month rental.  Therefore, the rental amount should take this into account in setting the amount of late fees.  Some landlords charge a daily rate of 1% of the monthly rental amount while others charge a single late charge for every month.  (While not relevant, it’s interesting to note that the Mobile Home Parks Residential Landlord Tenant Act (A.R.S. § 33-1401) caps late fees at $5.00 per day.)

While there is no set maximum a landlord can charge, in the context of evictions, many of the Maricopa County Justices of the Peace will limit the late fees they will award to $300.00.  This policy is followed as a means of not rewarding landlords that fail to act and to ensure that tenants do not become overwhelmed with unreasonable late fees.

As referenced above, there is no statutory grace period under the Residential Act in Arizona.  Therefore, late fees can start as soon as rent is late.  A landlord can make the rent due on the first and late on the second of the month.  Under such a contract, if the tenant has not paid the rent on the first, the late fees automatically start accruing and the tenant has to pay the rent and late fees if he wants to reinstate the lease and avoid an eviction.  Also, in such a situation, if the rent is not paid on the first, the landlord can send out a non-payment of rent notice on the second.

While not required some landlords allow for a grace period before late fees accrue.  In typical cases, the rent is due on the first of the month, but late fees will not be charged until the fifth.  From a legal perspective, that is acceptable; however, from a practical perspective, this creates confusion for the tenant because even though late charges aren’t due before the fifth the landlord could still send a nonpayment notice on the second.  It’s simply easier to have the rent be due on one day, and the late fees start the next day.

As a final note, if a landlord is charging late fees she should be sure to charge applicable taxes.  Most cities will treat late fees as business income and tax it accordingly.  You should check with the municipality in which your city is located to ensure you are following the applicable city code.

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