Late fees are a necessary evil for landlords aw we often need some type of “hammer” to hold over the heads of tenants who pay rent late. With this post I want to provide you with some additional information on the requirements that must be met with regard to late fees as specified in ATCP 134 of the Wisconsin Administrative Code.
A Bit of History:
In the past – prior to ATCP 134 and when the administrative rules pertaining to residential rental housing were called Ag 134 — late fees were not allowed. Because of this creative landlords came up with the idea of offering discounts for the prompt payment of rent. For example, if the tenant pays rent by the 1st of the month the rent will be discounted to $650, however if rent is not received by the 1st of the month then the rental amount will remain at the regular rate of $700. By doing this landlords still were able to obtain a form of late fee without calling it a late fee.
I still see this “discount rent” option on a few of my client’s rental agreements but it has become rare as there is no need to disguise a late fee anymore since late fees are no longer prohibited.
ATCP 134.09(8) Rules Regarding Late Fees:
While late fees are no longer illegal, there are some rules that have been imposed regarding how and when late fees can be used. In the revised Ag Rules (now referred to as ATCP 134) the rules regarding late fees are as follows:
1. You cannot charge a late fee or late penalty unless it is specifically stated in the rental agreement.
2. You may not charge a late fee for the non-payment of a late fee.
3. Before charging a late fee you must apply all rent prepayments received to offset the amount of rent owed by the tenant.
The first two rules are pretty straightforward. However the third rule is a bit confusing. In essence, the third rule is basically saying that you cannot apply a tenant’s rent payment to a past owed late fee so that the tenant would now be considered late in paying the current month’s rent thus allowing you to charge an additional late fee.
Here is an example: Joe Tenant fails to pay you rent for the month of June in the amount of $500. After the 6th of the month you charge Joe a $50 late fee. On or about June 10th Joe pays his rent of $500 for the month of June but fails to pay the $50 late fee. So while Joe has now paid June’s rent in full he still owes you a $50 late fee. When July 1st comes around Joe promptly pays you his July rent of $500. You are not allowed to take Joe’s July rent payment of $500 and apply $50 of that payment to the outstanding $50 late fee for June. This is not allowed because by doing so your actions would now make Joe responsible for paying a late fee for July as well because he would have only paid you $450. You cannot do this.
In the example above you would need to apply the $500 July rent payment to July’s rent and then continue to keep the $50 late fee from June “on the books” and either collect it from Joe in the future or at the end of Joe’s rental term or tenancy deduct the June $50 late fee from Joe’s security deposit (assuming your nonstandard rental provisions allow you to do so).
While it may be tempting to ignore this administrative rule you must remember that by ignoring the rule you will be in violation of ATCP 134 which would allow Joe Tenant, under §100.20(5) Wis Stats., to recover twice the amount of the loss (in this case $100) plus his costs in filing the lawsuit and his attorney’s fees (and trust me these will be more than the $100 ; )
The three rules mentioned above are administrative rules and apply statewide. You must also be aware that many municipalities have created additional rules regarding late fees. An example would be the City of Madison which specifies that a late fee cannot exceed more than 5% of the rent amount. So be sure and check the local administrative ordinances where you own your rental property.
If you have not already done so, please read Part 1 of my post on the issue of late fees here.