Question:
Is the following clause permissible in a lease agreement between tow Jewish organizations:
"In the event Tenant fails to remit the full rent due to Landlord by the tenth (10th) day of the month for which the rent is due, a late fee of two percent (2%) of the monthly rent shall be added to the rent due, with an additional one percent (1%) added for each and every month (or portion thereof) that the rent remains outstanding. This late fee shall be considered "Additional Rent" as defined in this lease. The fee is not intended and shall not be construed as an interest charge, but rather as reimbursement to defray Landlord’s expenses associated with handling payment delinquencies. Notwithstanding the foregoing, in no event shall such payments exceed the applicable usury ceiling were the late charge deemed interest rather than a delinquency charge. Additionally, the provisions herein are not intended to limit Landlord’s remedies under this lease but shall be in addition to all other rights and remedies provided."
Answer:
Hello,
The contract the way it is written is problematic, because regardless of the fact that it says that it is not meant to be interest, it is. What are the "landlords expenses dealing with payment delinquencies", that are 13% a year, 2 percent the first month and 1% each month after that?
There are however one of two options, the first is that it should be stipulated in the contract, that the contract is subject to a heter iska, (you can use Bris Pinchos if you would like). Another option, is to change the stipulation, to read the following. That there is a 2% one time fee for each month that the rent is late, (one time fees are permitted). Additionally, no rental month may be skipped, meaning, that February's rent may not be paid until January's rent has already. This way, you will be getting 2%, for each month that the rent is late, and it is not ribbis, but a one time fine.
Best wishes
