Many residential leases purport to require tenants to pay their landlords late fees if they pay their rent late. Many tenants pay those fees without challenging them, and the question arises: are these fees enforceable?
A late fee is only enforceable if it is a genuine pre-estimate of damages a landlord will suffer if the rent is paid late. Examples of such a loss include the interest a landlord could have earned on the money, the NSF fee charged by the bank when the landlord tried to withdraw the rent money, or the cost incurred by missing a mortgage payment. The burden is on the landlord to prove the loss on a balance of probabilities.
The Alberta Residential Tenancies Act  is silent on the question of late fees. At common law, the rule on whether or not a fee for breaching a term of a contract is enforceable depends on whether the fee is a penalty (in which case the fee is not enforceable) or liquidated damages (in which case it is enforceable). The terms “penalty,” and “liquidated damages” are defined in the 1915 Supreme Court Case, Canadian General Electric : “A penalty is the payment of a stipulated sum upon breach of the contract, irrespective of the damage sustained. The essence of liquidated damages is a genuine pre-estimate of damage.” This is in keeping with the principle that an injured party is entitled to be compensated and made whole, but not bettered by a damage award, as explained in Meunier .
Two cases about the enforceability of late fees against tenants in Alberta were decided by judge LeGrandeur: Cracknell  in 2001 and Fothergill  in 2017. In each case, the judge applied the same reasoning to distinguish between a penalty and a genuine pre-estimate of damage by citing the seminal test established in 1914, in Dunlop .
- The sum in question will be a penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss that could possibly follow from the breach.
- If the obligation of the promisor is to pay a certain sum of money and it is agreed that if he fails to do so he will pay a larger sum, this larger sum is a penalty.
- If there is only one event on which the sum agreed is to be paid, the sum is liquidated damages.
- If a lump sum is payable upon the occurrence of one of several events both serious and trifling, there is a presumption that the sum is a penalty.
In Cracknell, the landlord charged the tenant $5.00 per day the rent was late. The judge found this to be a penalty under the first factor of the Dunlop test, saying “the exorbitance of this amount can be demonstrated by considering it in the context of the monthly rental payment of $325.00. The $5.00 assessment would represent a return, over the course of a month of 46%. This is extravagant and unconscionable in comparison with the greatest loss that could possibly flow from the tenant’s breach, that is the landlord’s loss of the benefit of the money for 30 days” .
In Fothergill, the landlord charged the tenant $40.00 if the rent was between one and fifteen days late and a further $40.00 if the rent was between sixteen and thirty days late. The judge found the lack of a precise correlation between the number of days late and the amount of the late fee to suggest that the fee could not be a genuine pre-estimate of damage. The judge said, “there is no evidence to suggest this was a genuine pre-estimate of damage given that the $40.00 is payable whether it’s one day late or fifteen days late” . The judge also found the fee to be a penalty under the second factor of the Dunlop test, saying “the tenant is obligated to pay a certain amount of money on the first day of each and every month and if that does not occur then he is obliged to pay more to maintain his occupancy of the premises. Considering all the circumstances, in my view this is a penalty and therefore not enforceable” .
Alberta Judge Ingram addressed essentially the same issue in the cases of Hood in 2000 , which he followed in the case of Tuke in 2007 . In each case, the landlords claimed the return of “discounted rent” money from their tenants for breaching the residential lease. In Hood the judge found that the money claimed was a penalty because the landlord made “no allegation of any loss other than non-payment” . Quoting Dunlop, the judge went on to say that the claim “is clearly in terrorem of the offending party and not a genuine covenanted pre-estimate of damage and is therefore a penalty” . Judge Ingram also found that the Provincial Court has the authority to relieve tenants against the clause in the lease stipulating the return of “discounted rent,” and that this power is granted by section 10 of the Judicature Act: “Subject to appeal as in other cases, the court has power to relieve against all penalties and forfeitures and, in granting relief, to impose any terms as to costs, expenses, damages, compensation and all other matters that the court sees fit.” 
At the Edmonton Community Legal Centre, we often see landlords charging late fees, and agents and counsel representing the landlords continue to attempt to enforce them in spite of the case law suggesting blanket late fees are actually unenforceable penalty clauses. It would be good to have the Superior Court address this issue to provide clarity to everyone involved, and to protect tenants from paying unconscionable penalties when they are late in paying their rent.
 Hood at para 6
 Hood at para 7