Krupp Realty Co. v. Joel
168 Ga.App. 480, 309 S.E.2d 641, 1983 Ga. App. LEXIS 2818 (1983)
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Rule of Law:
A fixed late-payment charge in a lease contract is an enforceable liquidated damages clause, not an illegal penalty or usurious interest, if it represents a reasonable pre-estimate of the probable loss from the breach. The party challenging the clause bears the burden of proving that it is an unreasonable penalty.
Facts:
- A landlord and a tenant, Joel, entered into a written lease agreement for a premises.
- The lease required a monthly rent of $334, due on the first day of each month.
- The lease contained a provision requiring the tenant to pay a $50 charge as 'additional rent' for 'services required' if the monthly rent was received after the fifth day of the month.
- In one instance, Joel offered to pay the $334 rent on the seventh day of the month.
- The landlord refused to accept the payment unless Joel also paid the $50 late charge.
- Joel refused to pay the $50 charge, contending it was unconscionable.
Procedural Posture:
- The landlord (appellant) filed an affidavit for a dispossessory warrant in a trial court, seeking possession of the premises and past due rent.
- The tenant, Joel (appellee), filed an answer, arguing the $50 late charge was unconscionable.
- Joel paid the undisputed portion of the rent ($334) into the registry of the court.
- Following a bench trial, the trial court found that the late charge was usurious and that the landlord was only entitled to the $334 in the court's registry.
- The landlord (appellant) appealed the trial court's judgment to the Court of Appeals of Georgia.
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Issue:
Is a fixed $50 late charge in a residential lease, which is triggered if rent is paid after the fifth of the month, an unenforceable penalty or usurious charge rather than a valid liquidated damages clause?
Opinions:
Majority - Deen, Presiding Judge
No, the fixed late charge is a valid liquidated damages clause, not an unenforceable penalty or usurious charge. The charge is not usurious because a late rent payment is not a loan or forbearance of money. The provision is an enforceable liquidated damages clause because it satisfies the three-part test from Southeastern Land Fund v. Real Estate World: (1) the injury caused by the breach (additional administrative and clerical services) is difficult to accurately estimate; (2) the parties intended to provide for damages, as evidenced by the lease language; and (3) the $50 sum is a reasonable pre-estimate of the probable loss. Therefore, the trial court erred in finding the charge usurious.
Dissenting - Carley, Judge
Yes, the late charge is an unenforceable penalty. Although not usurious, the charge fails the third prong of the liquidated damages test because the stipulated sum is not a reasonable pre-estimate of the probable loss. The fee is a fixed, unvarying sum regardless of the length of the delay, which, according to Florence Wagon Works v. Salmon, makes it prima facie a penalty. There is nothing in the record to demonstrate that $50 is a reasonable pre-estimate of the landlord's damages, and where a provision is in doubt, courts should construe it as a penalty.
Concurring - Birdsong, Judge
No, the late charge is enforceable in this case, but for reasons different from the majority. While there is no evidence in the record to prove the charge is a reasonable pre-estimate of damages, the burden of proving that a liquidated damages clause is an unenforceable penalty rests on the defaulting party—in this case, the tenant. The tenant, Joel, failed to present any evidence to show that the $50 charge was exorbitant, unconscionable, or bore no reasonable relation to the landlord's actual damages. Because the tenant failed to carry his burden of proof, the provision must be enforced.
Analysis:
This case clarifies that late fees in lease agreements are analyzed under contract law principles for liquidated damages, not usury laws. It establishes that a fixed late fee can be valid if it appears to be a reasonable pre-estimate of damages that are difficult to calculate. The concurring opinion is particularly significant for establishing that the burden of proof falls on the tenant to demonstrate that the fee is an unreasonable penalty, making such clauses more difficult to challenge in court without affirmative evidence.
