Question:
I am preparing a lease contract to rent out our car. I would like to include a clause stipulating that whenever a payment is late the renter will have to pay interest on the late fees. Does this involve a problem of ribbis or asmachta?
Answer:
Both issues you mentioned, ribbis and asmachta, are real concerns. I will elaborate and suggest ways of achieving your goal within halachically acceptable parameters.
The Torah prohibition of ribbis applies only to a debt generated by a classic loan in which money changes hands. If the debt is incurred through the sale of a commodity or rental of an item or property and interest is charged on that debt, the prohibition is midderabonon. Thus, although a Jewish-owned business may extend credit to its Jewish customers, it should not charge for those credit privileges.
However, if the payment for credit extended on a purchase is due on a specific date, or a rental fee is not paid on time, the creditor may pass on all billing costs the business absorbed. Furthermore, the creditor may prepare a late-fee agreement penalizing a person for paying late. This is permitted because the fee is not interest on a loan but a penalty for paying late.
A late-fee penalty is distinguishable from interest on a loan by name and by the method of calculating the charge. The contract should not refer to interest charges but to late-fee penalties. Furthermore, interest charges depend on how overdue the payment is. The late fee should be a one-time penalty. If the sum depends on how late the payment is, it is considered more like interest than a penalty. A one-time fee regardless of how long the payment is overdue is more clearly a late fee and is consequently permissible. If the agreement calls for multiple payments (e.g., monthly rental payments), a penalty may be levied for each time the payment is not made on time. When a rental agreement is drawn up, it is best to design it with this principle in mind.
Rental (but not sale) agreements can sometimes employ another device that permits charging fees extremely similar to interest.
In some situations where the rental is expected to be paid at the end of the usage, it is possible to offer a few options to the tenant or renter. If the renter will pre-pay or pay any time earlier than is normally acceptable, the rental fee will be less than it would if he pays at a later time. It is possible to offer a few tier levels and the renter does not need to decide until he is ready to pay. Effectively what happens is that the later a tenant (or any other renter) pays, the greater the amount of rent he will have to pay per day of use. This method will only work as long as the tenant is renting the house. Once he leaves the house and still does not pay, the landlord cannot charge more for the delay in payment. (The late-fee penalty mentioned earlier, is still an option.) The explanation and details are quite lengthy and it deserves a separate discussion. I merely mean to allude to this other option so that you can pursue explanations and details when you need to put this in practice.
The issue of asmachta can be avoided by adding the following phrase at the end of the document (before the signatures):
החתימות מעידות שהצדדים מודים שקבלו בקנין גמור בב”ד חשוב מעכשיו באופן המועיל על כל הנ”ל.
This phrase neutralizes any asmachta and makes the contract binding.
