New Texas Law on Landlord Late Fees – Effective Sept 1

The majority of the questions coming in are focused on the new law fee law that goes into effect on September 1, 2019.  SB 1414 changes the law in Chapter 92, Property Code.  Chapter 92 governs all residential tenancies, meaning for manufactured home communities this applies to situations where the landlord is leasing both the lot and the home to a tenant.  Situations of lot lease only are governed by Chapter 94, Property Code, which was not impacted by this law change.  However, a prudent lot lease landlord might be well served to acknowledge the new legislative precedent created in Chapter 92.

The new law will eliminate ambiguity in the previous law that led to numerous class-action lawsuits.  The goal of the law is to resolve the prior legal battles disputing in court what it means to be a “reasonable” late fee.  The bill creates a “safe harbor” for what constitutes a “reasonable late fee” as a fee that:

is not more than:

12 percent of the amount of rent for the rental period under the lease for a dwelling located in a structure that contains not more than four dwelling units; or

10 percent of the amount of rent for the rental period under the lease for a dwelling located in a structure that contains more than four dwelling units; or

the late fee is more than the applicable amount of either 12 or 10 percent, but not more than uncertain damages to the landlord related to the late payment of rent, including direct or indirect expenses, direct or indirect costs, or overhead associated with the collection of late payment.

The law change would also add a new obligation that a landlord must provide a written statement to the tenant regarding any assessed late fees and the amount of the late fee.  The statement is only required if a tenant requests the statement from the landlord, and a landlord’s failure to timely respond to the statement request does not affect the tenant’s liability for any late fee owed.

Essentially, the law now provides for two (depending on the type of rental asset) landlord options to impose late fees.  In the typical manufactured home community situation where the lot and single home are leased to a tenant the “safe harbor” fee amount will be 12 percent of the amount of monthly rent because the manufactured home is a “single structure” (i.e. not an apartment complex).

Additional questions we have recently received are on the totaling of an initial late fee with any daily additional late fee assessments.  The new law specifically addresses this:

(b)  A late fee under this section may include an initial fee and a daily fee for each day any portion of the tenant's rent continues to remain unpaid, and the combined fees are considered a single late fee for purposes of this section.

Thus, the law is clear that in calculating the amount of fee that can be charged and stay under the 12 percent “safe harbor” as a “reasonable” late fee, the landlord must total together the initial fee, plus any additional daily fee and that total should be below 12 percent of the monthly rent.

The law does provide for an option to exceed 12 percent based on the landlord’s damages, which will be a business decision for those who choose this option as to how much to charge, how to backup and document their damages, and their confidence in defending the fee charge if challenged in court that their fees exceed a “reasonable” amount.

There is one additional important change coming in September as a result of SB 1414.  The previous law allowed a landlord to impose a late fee after one full day following the date rent was due.  The new law changes this timing to two full days.  The new law also adds that a late fee is permissible following two full days after rent was due when, “any portion of,” the tenant’s rent has remained unpaid.

The bill does not require any changes to a lease contract, however TMHA strongly recommends that lease contracts entered into after the effective date of September 1, 2019 be changed to reflect law changes and adhere to the safe harbor language.  TMHA will update our lease contract supplied to members.