A late fee by any other name is still a late fee

by | May 3, 2021 | Landlord & tenant representation, Uncategorized |

“I’m sick to death of cleverness. Everybody is clever nowadays.” Oscar Wilde wrote for his protagonist Jack Worthing in “The Important of Being Earnest”. It’s as true today, as it was in 1895. And just as it did for the characters of Wilde’s play, this practice can get one into trouble.

On June 14, 2019 the Housing Security and Tenant Protection Act of 2019 became effective. It dramatically altered the relationships between landlords and tenants in New York. One of the areas of material change was late fees. The statute reads:

“No landlord, lessor, sub-lessor or grantor may demand any payment, fee, or charge for the late payment of rent unless the payment of rent has not been made within five days of the date it was due, and such payment, fee, or charge shall not exceed fifty dollars or five percent of the monthly rent, whichever is less.”

NY CLS Real P § 238-a(2). Most landlords have responded by accepting the change, but others have attempted to get creative, restructuring their leases to raise rents and offering a benefit for prompt payment rather than a penalty for late payment.

In the case of Beco v. Ritter, 190 A.D.3d 1150 (3rd Dept. 2021), Mr. Douglas Ritter, a landlord, increased the rent of two of his tenants by $375.00 each. He simultaneously offered to credit them $375.00 for prompt payment (or rather he agreed to give them this credit them if they paid by the seventeenth of the month).

The tenants objected to this change and the notice by which it was communicated. They argued that this restructuring of their rent obligation violated Real Property Law 238-a as an illegal late fee. He refused to withdraw his notice reflecting the increase and the underlying policy. So, the tenants sued him.

Plaintiff-tenants moved for summary judgment and, in the words of the Appellate Division, “[the] Supreme Court keenly recognized, however, such a ‘discounted’ rental payment schedule is no different than if defendant charged plaintiffs a flat $375 late fee each time they failed to pay their rent in a timely manner.” Id. at 1152. The Court found in favor of the tenants.

The landlord appealed, pro se, and the Appellate Division, Third Department affirmed. The Court found several issues with the landlord’s new policy, specifically “that this discounted rental payment schedule was, in actuality, an unenforceable late fee that not only exceeded the applicable statutory limit, but was grossly disproportionate to any damages that could be sustained based upon plaintiffs’ failure to pay the rent on time…and imposed a penalty that may not be sought in a summary proceeding ….” Id.

The Court troubled to comment that “[a]lthough we are sympathetic to the statutory and administrative costs of doing business as a landlord, defendant may not avoid the late fee limits imposed by Real Property Law § 238-a by labeling an otherwise impermissible late fee as a two-tiered rent payment schedule.” Id.

The lesson here is that if you want to stay out of trouble, don’t be too clever. Courts are generally unsympathetic to the practice of trying to do an end run around a statute, especially one that protects consumers, such as tenants. They might wish, as Wilde’s Worthing did, “we had a few fools left.” Never fear. As his friend Algernon Moncrief observed, “We have.” Just be sure you’re not one of them.