Late rent interest

Late rent interest is a default fee that a landlord may charge a tenant when rent is overdue, governed by schedule 1 of the Tenant Fees Act 2019 as confirmed in gov.uk's statutory guidance for enforcement authorities. The Act prohibits almost all payments beyond rent and a capped deposit, but expressly permits interest on late rent as a tightly defined exception. It is a deterrent and partial cost-recovery tool, not a mechanism for generating income from arrears.

Late rent interest is one component of the wider rent arrears management process, it applies where rent is overdue but arrears have not yet reached the threshold for formal possession proceedings.

The conditions that must be met

Three conditions must all be satisfied before a landlord can lawfully charge late rent interest in England:

1. The right must be written into the tenancy agreement. A landlord cannot charge interest on an improvised basis. The tenancy agreement must contain an express clause permitting the charge, specifying the rate and when it begins to accrue. An oral agreement or a term added after the tenancy starts does not suffice.

2. The rent must be at least 14 days overdue. Interest cannot accrue on a payment that is one, two, or thirteen days late, regardless of what the tenancy agreement says. The 14-day period runs from the original due date set in the tenancy agreement.

3. The rate cannot exceed 3% above the Bank of England base rate. This is an annual percentage rate applied on a daily basis to the outstanding amount. Any charge above this ceiling is a prohibited payment under the Tenant Fees Act and exposes the landlord to a penalty of up to £5,000 for a first breach.

Late rent interest is classed as a default fee under schedule 1 of the Tenant Fees Act 2019, one of the very few payments a landlord can require in addition to rent and a capped deposit.

How to calculate the daily interest charge

Once the 14-day threshold is met, interest backdates to the original due date, not to day 15. The interest accrues daily for as long as any amount remains outstanding.

The formula is:

Daily interest = (overdue rent × (BoE base rate + 3%)) ÷ 365

As an example: if monthly rent of £1,000 is unpaid and the Bank of England base rate is 4.25% (giving a total rate of 7.25%), the daily interest is £1,000 × 0.0725 ÷ 365 = approximately 20 pence per day. On a 30-day overdue period that is roughly £6. On a longer period, or on a larger rent, the sums become more significant, particularly as the BoE rate rises.

If the outstanding amount changes, for instance because the tenant makes a partial payment, the calculation must be rerun on the new balance from that date, using the BoE rate applicable at that time.

From working with self-managing landlords across the UK, the practical value of late rent interest is rarely the sum itself, which is usually small, but rather the signal it sends when communicated calmly and transparently. A landlord who has a clear clause in the agreement and explains exactly how much interest has accrued is demonstrating professional standards to both the tenant and, if it reaches that point, a tribunal.

What is and is not permitted

The Tenant Fees Act is specific about what counts as a permitted default fee and what constitutes a prohibited payment.

Permitted: interest at up to 3% above the BoE base rate, calculated daily, on the overdue amount, once 14 days have passed.

Prohibited: flat admin fees for late payment (for example, a fixed charge of £25 or £50); interest above the capped rate; separate "chasing fees" or "letter fees"; multiple stacked charges combining interest and a flat fee. Any charge not expressly permitted by the Act is a prohibited payment, regardless of whether it appears in the tenancy agreement.

One further constraint applies: only one party, either the landlord or their letting agent, not both, may levy the interest charge on a given overdue payment. Where a property is managed by an agent, the tenancy agreement should make clear which party holds the right to charge.

How to draft the clause in the tenancy agreement

A compliant late rent interest clause should include: the trigger (14 days after the due date), the rate ("Bank of England base rate plus 3% per annum"), the calculation method ("applied daily to the outstanding amount"), the start date for accrual ("from the original due date"), and whether it is the landlord or the agent who may apply it. Avoid any language that implies a flat fee or that interest begins before the 14-day period has elapsed.

Issuing a late rent notice alongside any calculation of accrued interest creates a clear paper trail and demonstrates to a court or ombudsman that the landlord followed a structured, proportionate process.

For practical guidance on when and how to communicate interest charges to a tenant, see August's blog guide on how to handle late rent payments.

Landlords who track rent through August's rent tracking feature receive automatic alerts when payments become overdue, giving them the precise overdue date needed to calculate interest correctly.

Frequently asked questions

Can a landlord charge interest on late rent in the UK? 

Yes, in England, under schedule 1 of the Tenant Fees Act 2019, provided three conditions are met: the right is written into the tenancy agreement, the rent has been outstanding for at least 14 days, and the rate does not exceed 3% above the Bank of England base rate, calculated daily. Flat-fee late charges are prohibited.

Does interest start from day one or day 14? 

Interest begins to accrue from the original due date, but the landlord cannot charge it until the rent has been overdue for at least 14 days. Once day 14 is passed, the landlord may claim interest backdated to the day the rent was first missed.

What if the tenant pays part of the overdue rent? 

Where the outstanding amount changes, the interest calculation must be rerun on the new balance from the date of partial payment, using the BoE rate applicable at that time. Interest does not continue to accrue on the portion that has been paid.

Do you need the interest clause in the tenancy agreement before you can charge? 

Yes. The right to charge late rent interest must be expressly written into the tenancy agreement before the tenancy begins. A landlord cannot impose it retrospectively or on the basis of an oral understanding. If the clause is absent, any interest charged is a prohibited payment.