If you are a landlord of either commercial or residential property in Illinois, you need to know what late fees you can charge your tenants. This blog post will shed some light on late fees in Illinois and helps you understand why you should hire an experienced eviction attorney.
The rule for late fees is not 20% or $20 in Illinois.
I am going to start this post with a cautionary tale. There is a shocking amount of really bad advice floating around the internet about what late fees an Illinois landlord can charge tenants. Landlords giving advice to each other on internet forums commonly cite 770 ILCS 95/7.10 for the proposition that “a late fee of $20 or 20% of the rental fee for each month an occupant does not pay rent, whichever is greater, is deemed reasonable.” Redditors pass around the same bad information. Non-attorney bloggers give the same bad advice. Property managers also seem to think this is the rule.
What all of these non-attorneys don’t get is that the 20% or $20 rule for late fees of 770 ILCS 95/7.10 only applies to self-storage units. That fact should be obvious to anyone who bothered to read the law they cite, which is the “Self-Service Storage Facility Act.” The 20% or $20 rule for late fees does not apply to residential leases. The 20% or $20 rule for late fees does not apply to commercial leases. It only applies to self-storage lockers.
This is why you should hire an experienced eviction attorney. An eviction attorney can help you understand what late fees you can charge your tenants. An eviction attorney can set you up with a solid, enforceable lease. Hiring an eviction attorney during the eviction process will give you the best chance to collect the late fees you’re owed. Doing it yourself and relying on Google to learn how to become a landlord is a bad strategy.
There is not a firm rule for what late fees you can charge your tenant in Illinois.
Illinois considers a lease to be like any other contract. The standard rules for contracts apply to leases. Illinois contract law considers late fees in contracts or leases to be a form of “liquidated damages.” Liquidated damages are disfavored under Illinois law, and our courts will not enforce them if given the chance.
To have a chance of a court awarding a landlord her late fees, the late fees (1) must have been intended to compensate the landlord for damages that might arise from the late payment, (2) the amount of late fees must be reasonable and bear some relationship to the damages incurred by the landlord due to late payment, and (3) the landlord’s actual damages from the late payment must be uncertain in amount and difficult to prove.
What this means is that a court will look at the late fees a landlord attempts to charge the tenant differently than the landlord looks at them. Landlords want to charge late fees to punish tenants for paying late. Courts are not supposed to care about that. Courts only care about whether the landlord was damaged by the late payment.
So, how much is reasonable to charge for a late fee? There is no hard and fast rule other than that smaller late fees are more likely to be enforced by courts than big ones. A 5% late fee charged once for each late payment (i.e. an $80 one-time late fee for a late $1,600 rent payment) is probably reasonable. There is no guarantee, but I have not seen judges balk at that. At the other end of the spectrum, a late fee of $30 per day (about $900 per month) is almost certainly too much and would likely not be enforced by a judge for residential leases.
A judge would be especially likely to enforce your late fee provision if you can link it to actual damages that you incur. If you rely on your tenant to pay her rent on time so that you can pay your mortgage on time, and if you suffer a late fee from your mortgage lender because you could not pay the mortgage for the rental unit, the judge would likely uphold a late fee charged to your tenant approximating your loss.
Do not ask for too much of a late fee. You won’t get it in court.
As I explained above, your late fees have to be reasonable. If they are not reasonable, a judge will not enforce them. If you ask for too high of a late fee, the judge will not do you the favor of reducing it to something the judge deems reasonable. The judge will just decline to give you your late fees in court. It’s all or nothing.
So, in setting late fees, landlords have to walk a fine line between setting late fees too low (which could encourage tenants to pay late) and setting late fees too high (which would not be enforced in court). You should talk to an eviction attorney before you sign a lease with your tenant to talk this issue over.
Chicago and Evanston are different. Talk to a local attorney.
As of the date this was posted, Chicago and Evanston have municipal ordinances that supersede generally applicable Illinois law. For example, in Chicago the maximum late fee for residential property is $10 on the first $500 monthly rent plus 5% an any additional monthly rent (e.g. the maximum late fee in Chicago on $2,000 in monthly rent is a one-time late fee of $85). Evanston has a similar law.
If you are a landlord in Chicago, Evanston, or any other municipality with a residential landlord-tenant ordinance, you really need to talk with an attorney before entering into a lease with a tenant because both ordinances have steep penalties for violating them. I am based out of McHenry County, Illinois. I do not regularly practice in Evanston or Chicago, so I am not the attorney to talk to for that. Talk to somebody who has experience down there.
That said, if you are not in Chicago or Evanston, I am happy to talk to any landlord or tenant for free, before signing your lease or after the lease is ready to end, to discuss your options. Give me a call at 815-317-5193 or drop me an email.