Community associations depend upon the timely payment of assessments to maintain operations and protect property values within the community. Essential services including landscaping, snow removal, insurance coverage, and the maintenance of appropriate reserve funds depend upon the regular and consistent payment of assessments by owners. Even in well-managed communities, however, delinquencies occasionally arise. When they do, associations may implement late fees both as an incentive to promote timely payment and as a reasonable means of offsetting the administrative burdens and costs associated with collection efforts.
Late fees serve two legitimate purposes:
- Encouraging timely payment. Without consequences, some owners may chronically pay assessments late, creating cashflow issues for the association.
- Covering administrative costs. Processing delinquent accounts takes time—tracking payments, sending notices, and coordinating with legal counsel if needed.
Late fees should not be used as a revenue generator or a punitive hammer. Courts expect associations to act proportionately and transparently and always require that late fees be reasonable.
A reasonable late fee typically reflects actual administrative costs. For example, processing a delinquent account involves staff time, bookkeeping, and communication. A fee that aligns with those costs is easier to justify. It should also be consistent with industry norms. Community associations commonly charge a nominal flat fee. A fee that is dramatically higher than neighboring communities or management company standards may raise red flags.
Late fees should also be clearly communicated to owners through a collection policy or a rulebook. Owners should know when a payment is late and the amount of the late fee that will be charged. Transparency reduces disputes and supports enforceability.
If your board wants to ensure your late fee policy is both effective and defensible, consider these steps:
Adopt a written collection policy. A clear, board approved policy helps ensure consistency. It should outline:
- Due dates
- Grace periods
- Late fee amounts
- Possible legal consequences for escalating delinquent accounts
Use a nominal, flat late fee. A fixed fee reflects the administrative time and expense associated with processing delinquencies and allows for consistent application. It also avoids the perception of interest-based or escalating charges, which can invite disputes.
Review your governing documents. Make sure your declaration or bylaws authorize late fees. If they do not, you may need an amendment or a properly adopted board resolution.
A well-designed late fee policy is not about punishing homeowners—it is about protecting the community. When fees are reasonable, transparent, and consistently applied, they help maintain financial stability without creating unnecessary conflict. Associations that strike this balance tend to collect dues more effectively, avoid legal challenges, and maintain healthier relationships with their members.
Kaman & Cusimano has several helpful documents available to its clients through the ATLAS portal, including sample Collection Policy and Procedure forms. If your association is not currently a Kaman and Cusimano client and is interested in learning more about our services and how we can help, please click the following link: Request for Proposal and type “Late Fees” in the subject field.
