Late Payment Penalties, Wajh-ol-Elzam, and Fines in Iran's Residential Market

Under the Landlord and Tenant Relations Act 1997 (effective 25 August 1997) and the broader Iranian Civil Code, the concept of a "systematic, usurious late interest rate" based on daily compounding percentages—similar to Western banking systems—is legally void. Such percentage-based, compounding late fees are classified as usury (Riba) and are not enforceable in Iranian courts. However, to ensure contractual compliance, Iranian law provides a powerful alternative mechanism known as "Wajh-ol-Elzam" (Liquidated Damages / Penalty Clause).

1. Penalties for Delayed Monthly Rent (Contractual Liquidated Damages)

In accordance with Article 10 (Freedom of Contract) and Article 230 of the Civil Code, parties may agree upon a fixed penalty for breach of obligations. If a residential lease agreement specifies a penalty for delay in rent payment, it is binding and enforceable.

Characteristics of Legal Delay Penalties:

1. Prohibition of Riba: The amount must never be expressed as a compounding monthly percentage of the debt, as this violates Islamic jurisprudence and will be voided by judges.
2. Fixed Daily Rate: Late rent penalties must be defined as a fixed monetary amount (e.g., 500,000 Tomans) for every day of delay.
3. Judicial Bindingness: Pursuant to Article 230 of the Civil Code, if a penalty is specified in the contract, the court cannot sentence the breaching party to pay more or less than the agreed amount. Judges lack the authority to mitigate these pre-agreed sums based on market conditions or inflation.

2. Penalties for Failure to Vacate (Tasarrof-e Odvani)

The most severe application of late penalties occurs when a tenant fails to vacate the property upon the expiration of the lease term. This is governed by the 1997 Landlord and Tenant Relations Act.

• Contractual Penalty (Wajh-ol-Elzam): Landlords typically include a daily penalty for holdover tenants that is significantly higher than the daily rent rate to serve as a deterrent.
• Quantum Meruit (Ojrat-ol-Mesl): If no penalty is specified, the landlord is entitled to "fair market rent" for the period of unauthorized possession, as determined by a court expert.
• Security Deposit Deduction: Under the 1997 Act, accumulated penalties are usually deducted from the tenant's security deposit (Rahn or Wadiyeh) during the eviction process handled by the Dispute Resolution Council (Shoraye Hal-e Ekhtelaf).

[!IMPORTANT] Condition Precedent for Landlords: To claim delay penalties for failure to vacate, the landlord must prove they were ready to return the security deposit. This is typically done by depositing the Rahn amount into the Judiciary's registry fund at the time of filing the eviction petition.

Through integrated planning, the Landager platform's automated system and intelligent alerts meticulously track main residential contract expiration dates and payments with instant notifications, empowering you to avoid costly delays. Landlords will possess the capability to calculate and document "Wajh-ol-Elzam" figures to prepare transparent and legally precise petitions for the Dispute Resolution Council.

How Landager Helps

Landager tracks lease terms, late compliance, and important deadlines - making it easy to stay compliant with Iranian regulations.

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