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NJ Residential Tenants & Unpaid Late Fees: How Nonpayment Can Lead to Eviction

As the economy lags, tenants struggle to pay their rent on time. Landlords attempt to protect their interests through leases provisions that require late fees for late rent payments. Tenants tend to ignore late fee provisions and allow the fees to accumulate. At some point, the fees owed may equal or exceed the rent. On the surface, it appears that the tenant violated the lease and can be evicted. Like most landlord-tenant issues, the problem is not so simple.

When a landlord seeks to evict a tenant, that action is brought by way of a summary proceeding in the Special Civil Part of the Superior Court of New Jersey. In these cases, the court may only hear a dispute as to the rent for the premises. Therefore, the landlord must show that the fees owed are part of the “rent.” This is best accomplished beforehand by a written lease characterizing the late fees as “additional rent.” With the fees included as rent, the next question is whether a court will enforce the fee provision.

Late Image (Clock)As a general principle, a court is more likely to enforce a late fee provision that is designed to compensate the landlord for the “approximate actual damages” caused by the tenant’s failure to pay on time. This rule comes from the unreported decision Kuhn v. Hopkins, A-4507-96T1 (N.J. Super. App. Div. 1998) (Unpublished). In Kuhn, a landlord tried to collect a $35 per diem late charge for every day the rent was late. If the rent was 30 days late, the tenant would owe the landlord more than 25% of the monthly rental. This fee structure exceeded the actual damages caused by the late payment, making the fees unreasonable. The lesson here is that absent a compelling reason, it is unlikely a per diem fee structure will be enforced. Landlords should limit the late fee provisions to a cost reasonably connect to the damage caused by the tardiness. Along this line, some courts will enforce a 5% cap (based on monthly base rent) on late fees.

Landlords must be careful not to force a tenant into nonpayment by applying tenant payments to late fees first and rent second. When doing so leaves the tenant with a base rent deficiency every month, it is unlikely a landlord can successfully evict for nonpayment. However, when a tenant habitually fails to pay accumulating late fees, the landlord may bring an action for eviction based on a violation of a lease covenant under N.J.S.A. 2A:18-61.1e(1) (“Section e(1) of the Anti-Eviction Act”).

Section e(1) of the Anti-Eviction Act provides that continued violation of a covenant contained in a lease (at its start) is good cause for eviction provided the landlord retained the right of reentry. In this instance, a lease provision that provided the landlord the right of reentry for continued failure to pay late fees may be sufficient grounds for eviction. Rather than sounding in nonpayment, this eviction would be based on the continued violation of lease covenant. A violation for which the parties agreed (in the lease) would provide the landlord the right to retake possession.

A final important point remains. As one of the strongest pro-tenant statutes in the country, the NJ Anti-Eviction Act contains specific notice requirements that must be followed. These notice requirements vary with the good cause alleged. Failing to follow them complicates the proceeding at the cost of time and money.

Evicting a tenant in New Jersey is an onerous and technical process. Since each situation is different, a landlord should consult attorney with his/her specific circumstances. Offit Kurman practices landlord tenant law throughout New York and New Jersey assisting landlords in avoiding unnecessary and costly delays. The firm’s geographic practice area includes: New York City (Manhattan, New York County, Brooklyn, Kings County, Queens, Queens County, Bronx County, Staten Island, Richmond County) and New Jersey (Jersey City, Hoboken, Bayonne, Hudson County, Newark, Essex County, Woodbridge, Middlesex County). The Firm invites you to visit the “Promises” page for our new way of doing business. Contact us today for a guaranteed free initial consultation.