Legal Question in Real Estate Law in California

It is not illegal. You agreed to it. It is reasonable.

The legality of late charges in real estate leases is debatable. Google ["liquidated damages" contract california] In general a clause in a contract specifying a fixed penalty for a breach will be more likely to be upheld if the amount is reasonable in relation to your monetary loss and not a "penalty." On the one hand, considering that your loss is merely the time value of money, 6% represents 72% interest per year and this could be held to be an unconscionable penalty. On the other hand, the law presumes that persons who enter into commercial transactions are more sophisticated than are "consumers," so attorney Ahluwalia's "You agreed to it" argument could prevail.

I disagree, more or less, with the previous answers. First, there is a California statute that addresses this issue directly, although it does not specify a maximum amount or percentage; it is Civil Code section 1671, and in particular, subsection (b) thereof would apply to a commercial lease.

Civil Code sections 2954.4 and 2954.5 allow a 6% late fee in residential mortgage situations, subject to certain limitations. I would regard this law as creating an exception to 1671 and not expressing a broad principle that 6% is generally fair. In my personal opinion, a 6% late fee is probably going to be held excessive by a court applying CC 1671. It seems high to me.

In addition, the only other statute directly addressing maximum late fees in dollar or percentage terms seems to be Civil Code section 1812.626, setting a cap of 5% or $5, whichever is less, on rent-to-own contracts for personal property.

A 6% late fee is not the same as 6% per month interest. If, for example, the late fee were charged on a month's rent when it was 10 days late, that would be equivalent to 18% per month for the ten-day (1/3 month) period. 18% per month interest would violate the usury laws, if they applied to late fees, but with limited research into the matter, I'd say that they do not.

I did not find any case law specifically saying that a number in or near the 6% area was or was not legal. There is some case law authorizing 1-1/2% or 2%, and at least one case saying 10% was not lawful in the circumstances of that case. Courts and text writers seem to be very reticent about blessing a particular figure as okay, or where the borderline is.