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“I’m sorry, but I’m going to be late with the rent this month,” Mr. Braun said to his landlord.

“That’s fine, but if you pay after the 10th of the month, there’s a $200 penalty,” replied Mr. Joshua, the landlord.

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“Isn’t that ribbis?” Mr. Braun asked.

“I don’t think so,” said Mr. Joshua. “I didn’t lend you anything. And if you pay on time, you don’t have to pay extra. But let’s ask Rabbi Dayan.”

Upon hearing the question, Rabbi Dayan said, “The Gemara [Bava Metzia 63b] refers to interest as ‘agar natar‘ – compensation for waiting for the money to be returned. Based on this statement, the Rashba writes that imposing a late fee on a borrower who doesn’t pay on time is not ribbis since there’s no agar natar.

“Nonetheless, the Rashba writes that charging the fee is prohibited because of haaramas ribbis – conniving. The lender could exploit this leniency to gain a return on the loan” [Yoreh De’ah 177:14].

“If the lender stipulated such a fine unlawfully, there is a dispute whether the borrower is required to pay it. Certainly, b’di’eved, if the lender collected the fine, he doesn’t have to return it [Y.D. 163:3].

“Many, however, only permit a one-time late payment penalty. If the penalty increases with time, many authorities consider it ribbis gamur – absolute rabbis – since there is compensation proportional to the delay in time, i.e., agar natar” [Yoreh De’ah 177:16].

“All the above, though, relates to a loan. Regarding other transactions, (one-time) penalties are allowed. Thus, a customer can stipulate that if a vendor doesn’t provide him his merchandise by a certain time, he has to add extra merchandise. Conversely, the vendor can stipulate that if the customer doesn’t pay on time, he has to pay a (one-time) penalty [Yoreh De’ah 177:18; Bris Yehudah 4:6-7].

“Similarly, a landlord can stipulate that if the rent is not paid by a certain date, the renter must pay a (one-time) penalty.”

“However, there is another factor to consider regarding penalties – that of asmachta (insincere obligation) – which can affect the ruling in our case.”

(To be continued)

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Rabbi Meir Orlian is a faculty member of the Business Halacha Institute, headed by HaRav Chaim Kohn, a noted dayan. To receive BHI’s free newsletter, Business Weekly, send an e-mail to subscribe@businesshalacha.com. For questions regarding business halacha issues, or to bring a BHI lecturer to your business or shul, call the confidential hotline at 877-845-8455 or e-mail ask@businesshalacha.com.