Late Payment Fees and Penalties in Mexico

In Mexican civil law, an additional charge made because an individual failed to pay their mandatory portion on time is not colloquially nominated "Late Fee," but rather a Pena Convencional (Conventional Penalty) or, alternately, compensation under the figure of Intereses Moratorios (Default Interest).

1. Freedom of Contract but with Limits (Proscription of Usury)

The general principle of contracts in Mexico presumes the freedom to impose beforehand the exact penal level if a party suffers the pecuniary pain of a delay or refuses to make a rent payment. However—and it is of critical consideration that every landlord and manager is highly aware of this—within the rule of law of the Mexican nation (Article 21.3 of the American Convention on Human Rights integrated into the national legal framework), default rates that result as grossly excessive and are legally qualifiers of a brutal or disproportionate act (called "Usury") are strictly unconstitutional and unconventional, and must by definition be re-liquidated or strictly reduced by a judge.

What Results as Legal (Mexican Standards)

A key point is the percentage or base. In ordinary transactions in Mexico, a well-designed lease contract will establish realistic percentages to compensate the landlord's treasury for the pain of delayed payment if it continues to be delayed (subsequently passing its term from the 1st to the 5th day in which an informal and traditional lax period was conceived). Generally, courts will tend to respect without problem a default interest rate of around:

• A 5% to 10% monthly (or fractioned by days), or even,
• An exact fixed surcharge of $50.00 to $250.00 pesos daily (MXN) capping the delay for unpaid rent for the month (if this translates to around or less than standard reasonable commercial legal interest rates that vary yearly).

What is NOT Exigible and Will Lose in Court (Exaggerated Rates)

Requiring 15% or a collection penalty of 30% per fortnight, or setting default costs that double the principal amount in just a few weeks, will immediately provoke a Special Lease Court (in fact, sometimes without an initial lawsuit required by the tenant, but "De Oficio" by the tribunal—following Mexican doctrines protecting debts in the country) to cancel the contractual stipulation. They will demand to reduce the debt and invalidate that line to a much lower, legally acceptable one (E.g. to the 6% annual legal maximum if it was exaggerated or un-stipulated). Moreover, this considerably diminishes the prestige and value of the legal dispute in your favor, as you would appear to be seeking to defraud individuals.

2. Terms or Tolerance Days ("Grace Periods")

Unlike many US municipal rental regimes where a total amount is legally prescribed (say, in the Property Codes) of 5 or 8 obligatory tolerated days of delay before it becomes "late," the Civil Code stipulated in this country generally prevents this by dictating something in this tone: the norm obligatorily dictates that the exact amount must "Be paid absolutely and fully on the agreed or stipulated date for it." In case of silence in the clauses, the expressly designated day rules without contemplation, and the tenant incurs strictly and undoubtedly in Mora (Default) counting from the Following Day after the base stipulation of their monthly duties irremediably succumbed. Even with this, the culture or usage in the country is to offer lax and friendly 5 calendar days for rent payment to await delays from the use of Banking platforms (SPEI or others), and then, exactly on the sixth day, the surcharge takes legal obligatoriness demanded by a breach of the agreed period.

3. Maximum Conventional Penalty Clauses

An element that is usually the cornerstone to add or consider instead of pure interest (such as the percentage exposed in base and days in default) is to unanimously agree upon a Fixed Conventional Penalty under Article 1843. In civil jurisprudence at local and national levels it is forcefully dictated: The original obligation can never total, quantifying and indexing together, a lesser value than the pure and exigible conventional penalty; meaning, in legal terms in a dispute your delayed or conventional penalty under contract will never be fit to surpass or triple, not even minimally exceed or equal the ceiling, the very quantum of the original pure principal base value it touted (of the rent or debt to immediately fulfill originally).

Institutional Charge Control with Landager

Making disproportionate charges to your tenants will not end favorably, worse still with how frustrating it is to calculate delay fines, indexed quotas for three manual days from March 5th to March 8th, and incorporating invoices. The robust general financial platform of the project and united invoice management provided in profitable programs like Landager, has automated this heavy and tedious accounting level. The system assumes and issues or recalculates delay surcharges or interests month by month with perfect standardization for all client collections if a closing day falls and they delay or fall late.

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