Legal Question in Real Estate Law in California

What is the law regarding limits on "late fees" charged in a commercial loan contract/agreement? I realize this is different from residential lease, loan, and commercial lease agreements. I appreciate any help!


Asked on 7/29/14, 9:52 pm

1 Answer from Attorneys

Actually they are not much different at all. In all such cases the law treats late fees as a form of liquidated damages. That means they must not be a penalty, i.e. they cannot be a "hammer" to get the payor to pay on time. Instead, they must reflect a reasonable estimate of the costs, expenses, losses, etc. that are incurred when a payment is late. They are allowed because it would not be reasonable to require the landlord, lender, etc. to tally up the $5 in interest on their own debt and the $11 in employee time and the $2.34 in amortized value of office equipment, etc., that are costs to the landlord/lender/whomever as a result of a late payment. As a general rule of thumb, late fees in the range of 5-6% of the payment or less are almost always upheld when challenged in court. Over that and the courts have tended to force the lender/landlord to prove that it really is a fair estimate of their costs of a late payment and that they did the evaluation and math to come up with the estimate before setting the fee.

Read more
Answered on 7/30/14, 6:31 am


Related Questions & Answers

More Real Estate and Real Property questions and answers in California