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What is the highest percentage allowed for a late fee?

In my contract my customer agreed to my late fee of 1.5%of the original contract price ($15,850). She signed it. The lien states the late fee as 10% of the total amount owed ($6174.30), per annum. Obviously, I want to go with my contracted agreement with her. Can i?

1 reply

Jul 8, 2021

The answer to that question is complicated. There is some doubt as to whether late fees are allowed depending on the kind of contract, the kind of damages at issue, and whether the contract allows for interest and attorney's fees. Penalties are not allowed in contracts, and late fees are often viewed as penalties. If a late fee is viewed as a penalty (as opposed to liquidated damages, which are allowed when the potential damages are hard to calculate at the time the contract is formed), the court will not enforce it and the fact that the parties agreed to it is not relevant. With respect to your specific situation, a late fee of 1.5% of the contract price ($15,850) would almost certainly be viewed as penalty, particularly if that amount is owed in addition to interest. An example of a late fee that would probably be allowed would be $25 per month to cover the cost of having to take the time to have someone try to collect the late debt. If you can collect the 1.5%, great. But I would not go to the mat over it and certainly would not expect a court to enforce a late fee that large.

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