Legal Question in Real Estate Law in California

Re: rent grace period

As a general rule, when you sign a contract, you are agreeing to all of its terms. However, this absolute right of parties to make contracts on terms of their own choosing has been abridged somewhat by statute and public policy.

Civil Code section 1671 provides that parties to a contract can provide for a fixed amount as what are called "liquidated damages" for a breach of the contract if determining the actual damages would be difficult, but that the amount thus specified must be a reasnable approximation of what the actual damages from the breach would be, if calculated or estimated. Any excessive payment provided for in the contract will be deemed a penalty rather than fair compensation for the breach, and only a court, rather than a private party, is entitled to impose a penalty.

A lease is a contract, and paying late is a breach. Therefore, the situation falls under the excessive liquidated damages law. Civil Code section 1951.5 says 1671 applies to liquidated damages provisions in residential leases.

So, is $25 excessive and thus illegal? This is a question of fact. If late payment is likely to cost the landlord in the area of $25 in harm, it would be legal; if his likly harm is only a few bucks, it's a penalty and unenforceable.

A late payment of $1,000 in rent will cost the landlord $100 a year at 10% interest; that's only about 27 cents a day. Landlords will argue that, in addition to the interest impacts of late payments, they incur additional costs for bookkeeping and collection.

Most experienced landlords, or those who own or manage a large number of units, already know what late fees they can get away with, and will avoid putting unreasonably high late fees in their standard leases. So, while I cannot say whether this particular late fee is excessive or not, I have a hunch that your landlord may know that the $25 fee will pass legal muster. My advice would be to pay it.