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Shaffer v. Tiny Blessings II

2005 WL 3309792 (N.J. Super. App. Div. 2005) (Unpublished)

LEASES; LATE FEE—A lease’s late fee that compounds monthly may or may not be reasonable; if a court finds it to be unreasonable, it should reform the late fee provision to reasonably compensate the landlord for late rental payments.

A commercial landlord sought to evict its tenant for non-payment of rent. “The amount of rent allegedly due and owing was derived from past due rent, penalties for late payment of rent, and fees associated with utility services, which the lease agreement characterize[d] as additional rent.” At the eviction hearing, the tenant stipulated “that these types of charges were in fact considered additional rent under the lease.” Nonetheless, the lower court “concluded that these charges were not ‘additional rent’ and dismissed the complaint for lack of subject matter jurisdiction.” The Appellate Division disagreed with the lower court. It found that the lease agreement specifically defined the charges at issue as “additional rent,” specifically citing the following text from the lease: “All rental payments and other charges provided for herein [including utilities and late payment of rent penalties] shall be paid without set off, recoupment, counterclaim or abatement of any nature whatsoever. Rental and other payments shall be made without previous notice or demand therefor[e] and shall for purposes of Landlord’s rights, including the nonpayment thereof, and for all other purposes for which the same shall be relevant be deemed additional rent subject to the same duties and obligations of Tenant with respect thereto and the same remedies of Landlord for the nonpayment of basic rent.” As best as the Appellate Division could discern, the lower court “also held that even if late payment of rent penalties were deemed ‘additional rent,’ [the landlord] had (1) waived his right to collect them; and (2) the late fee provisions in this commercial lease agreement were unconscionable and unenforceable.”

A late fee of ten percent was to be assessed on the fifth day of the following month. Essentially, the ten percent was to be compounded. In its analysis, the lower court “characterized [this provision] as ‘onerous,’ and noted, without specific reference to any authority, that ‘it is the policy of this State ... that [these] sort of administrative fees need to be in some manner rationally related to the [landlord’s] administrative costs.’” The Appellate Division disagreed that this late fee provision was facially invalid. It pointed out that “nlike residential tenancies, the terms of commercial leases are almost exclusively derived by market forces.” Generally, “a commercial landlord is free to negotiate with the tenant the terms of a lease, including ‘additional rent fees’ for late payment of rent.” To the Court, this didn’t mean “that there need not be a nexus between the amount of the fee charged, and any additional reasonable administrative cost incurred by the landlord. A late fee provision in a commercial lease is, at its essence, a stipulated damages clause.” For that reason, the Court, remanded the matter to the lower court to develop a record to determine the reasonableness of the late fee schedule. It ordered that if the lower court found “the provision compounding the late fees to be unreasonable, it should endeavor, to the extent possible, to reform the contract to fulfill the parties’ original intent” that the rent be paid on time and that the landlord be reasonably compensated for late rental payments.

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