Here’s What You Need to Know
If you own rental property in California, a recent federal court case deserves your attention… not just to stay compliant, but to avoid potential class action exposure and costly settlements.
What Happened
In Van Cott v. Equity Residential, a federal court in the Northern District of California preliminarily approved a nearly $43 million class action settlement against Equity Residential, one of the largest apartment REITs in the country, over its standard late fee structure. The fee that was challenged was not unusual. Rather, it was a 5% late fee with a $50 minimum.
The court found this structure likely unlawful under California law.
This follows a related ruling in Munguia-Brown v. Equity Residential from April 2024, which addressed tenants who were charged the same fee dating back to 2010. Together, these two cases represent more than a decade of exposure for a practice that many owners consider routine.
Why This Matters for Central Valley Owners
California law limits late fees to a “reasonable estimate” of the landlord’s actual costs of collecting late rent, rather than allowing a flat penalty. In this case, the settlement valued Equity’s “actual costs” approximately $32 per late fee charge, which is the standard the court then applied.
If you are an apartment owner who has a late fee clause in your lease agreements, now is a good time to review it with your attorney. A fee that feels standard, or widely used, may not hold up if it isn’t tied to demonstrable, documented costs.
The Future Impact
This case is yet another signal of a regulatory environment continuing to shift toward stronger tenant protections, including the Tenant Protection Act’s rent caps, SB 567’s tightened no-fault eviction rules, and the one-month security deposit limit that took effect in 2025. Each of these individually is manageable. Taken together, they meaningfully change the operating calculus for rental housing owners in California.
The good news is that none of this makes Central Valley multifamily a bad investment. The fundamentals are still solid, vacancy remains low, and buyer demand for stabilized assets is real. However, it does make the details more important than ever: leases, fees, compliance documentation, and your positioning when it comes time to sell.
What I Recommend
Have a landlord-tenant attorney review your current lease, specifically your late fee clause, deposit language, and any no-fault termination provisions, before your next lease renewal cycle. This is a relatively low-cost step that could prevent a high-cost issue down the line.
As always, if you have questions about how the regulatory environment is affecting valuations or your options as an owner, I’m happy to talk through it.
Dustin Ilic, CCIM
Multi-Family Investment Advisor
Visintainer Group
CA License 01772625