Late fees are a necessary evil for landlords, as we often need some type of "hammer" to hold over the heads of tenants who pay rent late. In this post, I want to provide additional information on the requirements for 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. As a result, creative landlords offered discounts for prompt rent payment. For example, if the tenant pays rent by the 1st of the month, the rent is discounted to $650; however, if rent is not received by the 1st of the month, the rental amount remains at the regular rate of $700. This lets landlords charge a late fee without calling it a late fee.
I still see this "discount rent" option in a few of my clients' rental agreements, but it has become rare because 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, rules still govern how and when you can use them. 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 says you cannot apply a tenant's rent payment to a past-owed late fee, so the tenant is considered late on the current month's rent, 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 $500 rent for 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 may not take Joe's July rent payment of $500 and apply $50 of it to the outstanding $50 late fee for June. This is not allowed because it would make Joe responsible for a late fee for July as well, since he would have paid you only $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, or 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 should also know that many municipalities have created additional rules regarding late fees. For example, the City of Madison specifies that a late fee cannot exceed 5% of the rent amount. So be sure to check the local administrative ordinances where you own your rental property.
If you haven't already, please read Part 1 of my post on late fees here.
