Late payment fees are outlined in California Civil Code section 1671. Generally, late fees in rental agreements are enforceable, so long as they are not too high to be considered a penalty. The late fees should not exceed the administrative cost of processing the late payment and the lost revenue resulting from the lateness of the payment.
Late fees under Civil Code 1671 states that the late fees must be agreed on by the parties in an amount “which shall be presumed to be the amount of damage sustained by a breach thereof” when, from the nature of the case, establishing the actual damage “would be impracticable or extremely difficult.”
Thus, when establishing a late fee provision in a rental agreement, it is important to set an amount that cannot be considered a penalty. The late fee should be a good faith estimate of actual damage suffered by the landlord.
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