S1039 Rental Fees Memorandum
RE: S1039
TO: Idaho State Legislators
DATE: 2023 Session
S1039 requires fees to be reasonable and in writing, unless a lease agreement is oral in compliance with the Statute of Frauds. The bill also requires landlords to notify tenants of any change in fees with 30 days’ notice.
S1039 has stakeholder support. All stakeholders affected by this issue have met consistently over the last three years and agree with the language in S1039. The bill is supported by key stakeholders including the Idaho Apartment Association (IAA) and the National Association of Property Managers and Realtors (NARPM) representing Idaho landlords, and the Idaho Asset Building Network, representing housing businesses, organizations, and tenants.
Idaho renters are challenged in this market. Renters make up one-third of Idaho’s population. In recent years, the cost of renting in Idaho has increased by 40%. One in two renters in Idaho now live paycheck-to-paycheck. Temporary job loss, a healthcare issue, or challenge with child care can easily lead to late rent payment. Evictions and homelessness in Idaho increased in 2022, and many renters are being displaced or evicted from their homes for the first time due to a temporary inability to pay their rent.
Exorbitant rental fees are a problem in Idaho. The Idaho Asset Building Network (IABN) recently surveyed 49 business and nonprofit members, which found rental fees to be one of the most common challenges tenants face. As the rental market changes, some property managers and landlords are charging renters exorbitant rental fees. Some are charging up to $100-$500 per day in late fees. One example seen recently in eviction court is a tenant who owed over $3,000 in late fees and only $500 in past due rent. In Idaho, any rent payments are first applied to fees. Even if a tenant pays their rent, it becomes impossible to catch up as fees stack up. Tenants can be evicted even if they pay their rent amount, but not fees.
Highlighting just one tenant’s story: Another example comes from Alex, a single mother of two, who owns her own cleaning business. Last year, Alex’s cleaning business slowed when she lost two clients, to no fault of her own, and she did not receive enough income to pay her rent. She incurred late fees every day she was unable to pay, which accumulated to $450 in less than a week. Alex finally decided to use her savings to pay her rent in order to avoid eviction, but the rent payment she made only applied to the fees. The fees continued to stack up. It was impossible to pay her rent in addition to the fees. Eventually, her landlord took her to eviction court for $500.
Fees have historically been required to be “reasonable” in Idaho. There are several requirements in Idaho Code that fees and other charges be reasonable, including limits to mortgages and storage facilities:
26-31-210(2) related to mortgages: “Any fees charged under the authority of this section must be reasonable and customary as to the type and the amount of the fee charged.”
55-2304(7) limiting fees for storage facilities: “ A reasonable late fee may be imposed and collected by an operator for each period that a lessee does not pay rent, fees, or other charges when due under the rental agreement, if the amount of the late fee and the conditions for imposing the fee are stated in the rental agreement. A late fee of twenty dollars ($20.00) or twenty percent (20%) of the monthly rent, whichever is greater, is a reasonable fee and will not be considered a penalty.”
FAQs. What does reasonable mean? It’s a common legal term that the courts are accustomed to interpreting related to fees and many other topics. Typically, in our state and others, reasonable has been interpreted by the courts to mean that a fee is related to actual costs to the landlord.
Why should we require private parties to contract in this way?
(1) Tenants and landlords in Idaho are asking the Legislature to provide more guidance on rental fees. A number of states require property management companies to register and comply with basic best practices, but Idaho removed that requirement in 2017. This has made it a challenge for landlords in Idaho to educate their own industry and ensure bad actors aren’t making a bad name for the industry as a whole.
(2) Many other states have passed laws related to rental fees because landlords and tenants are not on equal footing in negotiating lease terms. In most instances, tenants are provided the lease on a take-it-or-leave-it basis with no opportunity to negotiate any of its terms, including provisions related to late fees. Unlike a contract between two private parties in a business transaction, a lease operates more like a contract of adhesion in practice, which is a contract where the parties are of such disproportionate bargaining power that the party of weaker bargaining power could not have negotiated for variations in the terms of the contract.
Examples from other states. In an effort to curb excessive fees associated with the late payment of rent, at least 27 other states have enacted legislation placing maximums on the amount that can be charged, along with other restrictions and limitations. Five states have enacted legislation that imposes late fee limits that combine both percentage and dollar amount maximums, and ten states have opted to cap fees based on a percentage of the monthly rent. In many other states, class action and other lawsuits have led the courts to limit fees.
Reasonableness Requirement. Twelve states have no specified maximum that can be assessed as a late fee but instead require only that the fee is reasonable or reasonably related to the damage the landlord incurred as a result of the tenant paying late. In many of these states, the reasonableness requirement was established by the courts through litigation, rather than through legislation:
Arizona: For residential tenancies, it is implied within its eviction statutes that late fees must be reasonable.
California: Must be reasonably related to costs the landlord faces as a result of rent being late.
Connecticut: Fees must bear a reasonable relationship to the actual damage that the landlord sustains, and the court may void if excessive.
Illinois: Must be a reasonable forecast of damage caused by the breach.
Kentucky: Must be reasonable; $20 or 20 percent of the rental fee for each month is deemed reasonable.
Ohio: Must be reasonable in proportion to the rental rate and have a rational basis supporting the imposition of the charge.
Oklahoma: Must be reasonably related to actual costs incurred.
Pennsylvania: Late fees must be reasonable.
Texas: Must be reasonable; presumed reasonable if not more than 12 percent of the amount of rent for a dwelling located in a structure that contains no more than four units or 10 percent for a structure that contains more than four units.
Vermont: Late fee allowed if reasonably related to costs incurred.
Washington: Presumably must be reasonable.
West Virginia: Presumably must be reasonable.
Conclusion. Nickel-and-diming folks who are already struggling ultimately hurts all of us, leading to more landlord and tenant disputes about rent getting paid on time, as well as increases in eviction, homelessness, and of course, fees. Requiring rental fees to be transparent and reasonable is a common policy response to this problem in other states and an established tool used in Idaho Code to provide guideposts on fees. It would also help act as a deterrent for bad acting landlords in our state, and ensure that renters as consumers are protected from exorbitant fees.
