The Penalties of Issuing a Bad Check to Your Landlord - Lease Agreements and the Law

A good contract is supposed to reflect “a meeting of the minds.”  However, tenants are often in a lessor bargaining position with the landlord or property management company and the lease (a contractual agreement) usually reflects only one mind – that of the Owner/Agent.  For this reason, I offer lease review services to my clients.

As a rule, all landlord tenant lease agreements include a clause (e.g. a paragraph) concerning bounced checks. Below are examples from actual lease agreements used in the Bay area that require payments of $35 to $50 for each personal check returned for insufficient funds. 

RENT:  If a check is returned for ANY reason, there will be a $35.00 Returned Check Fee. In addition, NO further personal checks will be accepted and ONLY certified funds will be accepted for payment of rent, repairs, or other fees.

RENT: In the event rent, paid timely, is tendered by check which is, for any reason, dishonored by the Tenant’s financial institution, the payment shall then be deemed late and all late charges shall apply. In this event, future payments of rent for a period where a late fee has been assessed are also dishonored by the maker’s financial institution, then an additional fee of $35.00 shall be paid by Resident as reimbursement to the Owner/Agent for administrative expense from processing such a dishonored check.

NOTE that in the example immediately above, in addition to a $35 fee, LATE charges also apply as additional penalty.

RENT: Tenant agrees to pay a charge of Fifty Dollars ($50) for each dishonored check or if the check is returned for having insufficient funds.  After the first occurrence, Tenant shall be permitted to pay next month’s Monthly Rent via personal check.  After the second occurrence, Tenant will not be permitted to pay Monthly Rent via personal check for a period of six (6) months, but will have to pay via cash, cashier’s check or money order.  After the third occurrence, Landlord reserves the right to commence eviction proceedings.

NOTE that in this example, there is a “three strikes” sentence; pass a bad check 3 times and the tenant is faced with an eviction proceeding!

Are these fees actually legal?  The answer is “yes” and “no.”  Let’s review the law.

First, if you wrote a bad check knowing that there were insufficient funds in your bank account AND your intent was to defraud the party you wrote the check out to, you may be in violation of California Penal Code section 476 (a) which is a criminal matter. 

Most tenants who write out a rent check to their landlord do not intend to defraud their landlord; the tenant may simply be short of funds and may hope that the landlord will hold their check until they do have sufficient funds.  Rental property is hard won in the Bay area; tenants value a place to call home but a job loss or other unforeseen circumstances may strain their financial resources.

Second, Cal. Civil Code section 1719 (a)(1) fixes the amount of penalty that can be charged for passing a bad check:

“Notwithstanding any penal sanctions that may apply, any person who passes a check on insufficient funds shall be liable to the payee for the amount of the check and a service charge payable to the payee for an amount not to exceed twenty-five dollars ($25) for the first check passed on insufficient funds and an amount not to exceed thirty-five dollars ($35) for each subsequent check to that payee passed on insufficient funds.”

Cal. Civil Code section 1719 (a)(2) continues:

“Notwithstanding any penal sanctions that may apply, any person who passes a check on insufficient funds shall be liable to the payee for damages equal to treble the amount of the check if a written demand for payment is mailed by certified mail to the person who had passed a check on insufficient funds and the written demand informs this person of (A) the provisions of this section, (B) the amount of the check, and (C) the amount of the service charge payable to the payee…”

So, the moral of the story is simple; don’t write out a check when there are insufficient funds in your bank account.

Keep your rent monies in a savings account and allocate a portion of each paycheck to your rent.  Use a cashier’s check from your bank to pay your rent and keep the check stub in a safe place to prove your rent payment, if necessary.  The bank will take the entire rent amount from your bank account to cover the cashier’s check negating the possibility of insufficient funds.  And, if you issue a personal check for the rent to your landlord and your check bounces, be prepared to pay the penalty detailed in the lease clause.

Bottom line: know the lease terms you have committed to and be proactive.  Life throws us all curve balls on various occasions and having shelter is a basic human need.