Laws of Eve | Can landlords charge late fees?
A reader touched on a sore topic when she asked whether a landlord may charge a fee for late payment of rent because she reminded me that we still operate under a 1944 Rent Restriction Act ("the Act"), the amendment of which has been promised for decades and is yet to materialise.
The fact is that all residential rental properties are subject to the act (as being controlled premises) and so are most commercial rental properties, unless a successful application was made to the Rent Assessment Board ('the Board') for the property to be exempted from the provisions of the act. For that reason, although a landlord and tenant are free to determine the terms of their rental agreement, aspects of that agreement could be unenforceable if they are not in conformity with the provisions of the act.
One of the best examples of the way in which the act fetters the freedom to contract is the fixing of the amount to be paid for rent. Section 18 of the act states that landlords must make an application for "standard rent" to be assessed by an assessment officer at the board, that is, a rate that is a percentage of the annual value of the property. Importantly, Section 20 states that, if premises are rented for an amount that exceeds the standard rent, the landlord is not entitled to recover the amount in excess of the standard rent from the tenant.
Before determining whether the landlord may impose a charge for late payment, the question of whether the premises are controlled premises must be answered. If so, the next question is whether the amount being charged for rent is the "standard rent" as determined by the board. If not, the landlord will not get to the point of recovering a late charge, since he might not even be able to recover all of the outstanding rent.
Section 24 of the act makes it clear that a landlord may not threaten to terminate a tenancy of any controlled premises for the non-payment of "any fine, premium, or other like sum", unless that tenancy is under a lease of 25 years or more. It would seem that a late fee or interest charged on outstanding rent of controlled premises would, therefore, be contrary to the act if the rental agreement compels the tenant to pay that amount or risk termination of the tenancy.
The short answer to the reader's question is that the act may be interpreted to mean that landlords of controlled premises are not entitled to charge late fees when rent is not paid.
ASPECTS OF THE ACT IGNORED
In reality, many aspects of the act that are routinely ignored in contracts between landlords and tenants of residential and commercial premises that fall under the act, and I am of the view that the Act is severely biased in favour of tenants and has clearly outlived its usefulness. Below are some examples:
- Premises are not usually assessed to determine standard rent until there is a dispute between the landlord and the tenant. In fact, landlords and tenants usual agree rental rates based on what market conditions dictate.
- Landlords routinely charge security deposits (and tenants pay them), although they could be seen as a premiums charged as a condition for renting premises and therefore unenforceable under the Act.
- Rental contracts routinely provide for rent to be increased annually up to the maximum permissible amount of 7.5%, despite the fact that the conditions for such an increased, as set out in the Act might not be satisfied.
I have written several articles over the past 12 years in which I have appealed for the act to be reviewed. Will 2018 be the year in which it happens?