Would it be okay to charge a tenant late fee for rent in California? What amount is justified as the fee amount?

Question

Would it be okay to charge a tenant late fee for rent in California? What amount is justified as the fee amount?

Answer

It is not only legal, it is highly common. There is no fixed rule on how much can be charged. Late fees are treated as a form of "liquidated damages." The rule on liquidated damages in a contract is that they must bear a reasonable relation to a fair estimate of the amount of damages that the party suffers from a specific breach of the contract, that is either too small, or too difficult to calculate precisely, making suing for the breach impractical. It cannot be so much as to become a penalty, because punitive damages cannot be imposed by contract. So presumably the landlord incurs some extra interest on their mortgage for the property or maybe a late charge themselves, some extra accounting effort, etc. When I had a rental property I gave a 5-day grace period, then charged $75 on the 6th day, and $10/day after that to a maximum of $225. That pretty much covered my extra fees and interest expense on my mortgage.