A Disguised Late Fee Is Nevertheless a Late Fee: Landlord Fails to Navigate Statutory Restrictions

This was originally posted on the SGR Blog.

Residential rent late fees and charges are unambiguously limited by statute in New York. A landlord’s effort to avoid the legal restrictions was the subject of a recent appeal in an action in which a tenant challenged an attempt to navigate around the law.

Douglas Ritter was the landlord and owner of several rental properties in Broome County, and Karina Beco and others were Ritter’s tenants. In June 2019, Ritter sent a notice to Beco providing that, as of August 1, 2019, the monthly rental rate would be increased to $1,000 per month unless she paid the rent by the first of each month, upon which she would be entitled to a rental “discount” equal to the difference between their original monthly rental rate and the new $1,000 monthly rental rate. Beco’s attorney sent Ritter a letter informing him that his notice of proposed rental increases and corresponding “discounts” constituted an illegal late fee in violation of Real Property Law § 238-a and requested that change be withdrawn. In reply, Ritter sent Beco an amended notice, slightly reducing the newly proposed monthly rental rate and further providing that she would be entitled to a $375 “discount” if the rent was paid, in full, by the seventeenth of each month. Beco’s attorney objected to the amended notice on the same ground.

Beco filed suit seeking a judgment (1) declaring that Ritter’s proposed rental payment schedule was illegal and unenforceable as an illegal late fee in violation of Real Property Law § 238-a and RPAPL 702 and (2) enjoining enforcement of the charge. Supreme Court ruled in Beco’s favor, finding that Ritter’s rental payment schedule constituted an unenforceable late fee. Ritter appealed.

Real Property Law § 238-a (2) provides that “[n]o landlord . . . 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 [$50] or five percent of the monthly rent, whichever is less.” RPAPL 702 provides that, “[i]n a proceeding relating to a residential dwelling . . ., the term ‘rent’ shall mean the monthly or weekly amount charged in consideration for the use and occupation of a dwelling pursuant to a written or oral rental agreement” and that “[n]o fees, charges or penalties other than rent may be sought in a summary proceeding pursuant to [RPAPL article 7].

Supreme Court recognized that such a “discounted” rental payment schedule was no different than if Ritter charged Beco a flat $375 late fee each time she failed to pay her rent on time. Thus, Beco met her prima facie burden of establishing that the 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 her failure to pay the rent on time.

The appellate court was sympathetic to the statutory and administrative costs of doing business as a landlord. But Ritter could not avoid the late fee limits imposed by law simply by labeling an otherwise impermissible late fee as a two-tiered rent payment schedule.

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