I will review any fees I charge tenants to ensure they are transparent and legal

For many years, charging small add-on fees was a routine part of operating a rental property business. That era is over as a larger crusade took shape that called for transparency and the elimination of “junk” fees.

Housing providers need to know the limits on what they can charge, how fees should be structured, and how they must be disclosed. We know that there is a large number of landlords and property managers who are charging illegal fees, even if they are clearly spelled out in the lease. What we need to recognize is that just because there is an illegal fee contained in the lease, it is still illegal. Housing providers can have a lease clause that states it is perfectly ok to murder someone, but the law is above us, right?

Illegal fees are a topic ripe for litigation. If a landlord or their agent does not get fees right, they invite liability. Not only can tenants dispute unlawful fees and seek damages, but over the years, there has been an uptick in lawsuits that have churned out hefty judgments and settlements

In recent memory, one large landlord has agreed to pay $24 million to settle an 11-year lawsuit alleging that they illegally misrepresented the total cost of renting an apartment by excluding mandatory fees from the price it advertised to prospective tenants.

 

 

What is the purpose of a late fee when rent is not paid on time? 

A fundamental question is whether the effect of the fee is to:

  • Penalize a tenant for late payment or rent, or
  • Whether the amount reflects the actual out-of -pocket costs to the owner of the delayed payment. 

Late fees should be intended to recoup damages suffered by the owner, rather than being punitive. If the fee is used for reasons other than recouping reasonable costs, it is likely to be frowned on by the courts. One court, for example, refused to enforce a bank’s late fee because evidence showed the fee was intended to “generate new revenue” and “increase profitability.”

Unlike some other states in the Union, California does not set a fixed allowable late fee that can be charged. Rather, the validity of the fee will be up to the courts to interpret. Nonetheless, here are some pointers to increase the likelihood that a late fee will be upheld in court if it is contested. 

  • The late fee must be embedded in the lease. If it is not included as a provision in the rental agreement, the late fee will not be enforceable.
  • Verbiage should be included to the effect that the late fee does not establish a grace period, for one. Two, the parties agree that the charge is presumed to be the amount of damages the landlord incurs because of a late payment. Thirdly, it is impractical or extremely difficult to assign the actual charge, and finally, the failure to pay the late fee is a material breach of the lease. 
  • Document, as best as a landlord or agent can, on how they arrived at the amount of the late fee, taking into account estimated administrative costs and the dollar amount lost for untimely payment. 
  • A strong preference for a one-time fee of a fixed dollar amount, which is less likely to invite scrutiny. Contrast this to a per-day fee or a percentage-based fee. Why? Because administrative costs generally will not increase markedly from one day to the next. 
  • Consult with Bornstein Law before adding a late fee to the lease. With proper counsel, housing providers can determine what a reasonable amount is and the documentation that should be maintained. 

Application screening fees under scrutiny. 

Landlords may charge an application screening fee only to recover actual screening costs and not a penny more. While that longstanding rule has been around for a long time, a new law (AB 2493) will upend the way housing providers charge rental applicants in 2026. We’ve given an overview of that law here. 

While not technically a fee, security deposits are frequently mislabeled. 

Housing providers can, of course, require a security deposit to cover unpaid rent or damage beyond normal wear and tear. How many units are under ownership? Landlords can ask for one month’s rent unless they own two or fewer properties with a total of four or fewer rental units, provided they are natural persons or certain LLCs/trusts, and the tenant is not a service member. In that case, small landlords can charge 2 months’ rent. 

Too often, security deposits are frequently mislabeled as “move-in fees,” “cleaning fees,” “administrative fees,” “pet deposits,” “key fees,” and the like. However clever the name, all amounts designated as extra deposits are counted in the security deposit cap; separate nonrefundable fees disguised as deposits are generally not allowed. Whatever is collected is treated as a security deposit and must be refundable (minus lawful deductions) – there is no legal category for “nonrefundable” fees, and so housing providers should lose that term from their vernacular. 

Certain fees cannot be charged at all. 

Housing providers can no longer charge tenants fees for serving or posting eviction or other notices – This is the cost of doing business, not a tenant expense. Many landlords prefer online rent payments, but the law prohibits charging tenants a fee simply to pay rent by check. Electronic payments can be offered as an optional way to deposit money, but check payments must remain fee-free. 

With space such a scarce commodity in the Bay Area, it is no wonder that parking is a vexing issue in rental communities. If parking is included in the lease or rental agreement, landlords cannot later impose a separate parking fee without a lawful modification to the lease. Housing providers in certain rent-controlled jurisdictions should also be aware of the propensity of disgruntled tenants to complain to a Rent Board that their parking was stripped, and argue that this reduction in service should lead to a corresponding decrease in rent. 

Best practices in charging fees

1. Treat Fees as a Legal Risk Area, Not a Revenue Stream

In California, fees are one of the fastest ways landlords get sued or hit with administrative penalties.

Best practice:

  • Charge as few fees as possible

  • Assume every fee will be challenged

  • If a fee doesn’t clearly serve a lawful purpose, don’t charge it

2. Put Every Fee in Writing — Clearly and Specifically

A fee that is not clearly disclosed in the lease or rental agreement is usually unenforceable.

Best practice drafting tips:

  • Identify the type of fee

  • Explain what triggers it

  • State the exact amount or calculation

  • Avoid vague labels like “administrative,” “processing,” or “miscellaneous”

3. Never Try to “Rebrand” a Security Deposit

California courts look at function, not labels.

Best practice:

  • Assume any upfront payment (pet deposit, cleaning fee, key deposit) is part of the security deposit

  • Stay within the security deposit cap, whether determined by state law or local ordinances

  • Never call a deposit “non-refundable”

If it walks like a deposit, it is a deposit.

4. Application Fees: Document, Cap, and Disclose

Application/screening fees are heavily regulated.

Best practices:

  • Charge no more than actual screening costs

  • Provide a receipt or cost breakdown

  • Screen applications in the order received

  • Stop collecting fees once a unit is effectively rented

5. Late Fees Must Reflect Actual Damages

Late fees are allowed—but penalties are not.

Best practice standards:

  • Late fees should approximate real costs (staff time, accounting, disruption)

  • Commonly defensible range: 5–10% of monthly rent

  • Apply consistently

  • Never stack late fees month-to-month without limits

If challenged, you should be able to explain why that amount exists.

Parting thoughts

Housing providers can charge tenants certain fees, but they should do so in a narrow, careful, and lawful manner. The trend in Sacramento and in the courts is clear: fees are being eliminated, not expanded. Landlords and property managers who adopt now can avoid disputes later on.