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Advice for Landlords: When to Charge Tenant’s Late Fees

Advice for Landlords: When to Charge Tenant’s Late Fees

by Fred Fauth (email Fred) | | August 13, 2008 | 18 Comments »

late fee money

If you did your homework before accepting a tenant, chances are late rent payments will be few and far between for you.  If you rent long enough, though, some renter will eventually be late on a payment.  Even the best tenants aren’t perfect all the time.  This article is a compilation of a few thoughts on late rent payments, what fees you should charge, and how to make the most of late fees when they’re appropriate.

If you decide not to read all the points, there’s only one key take away to get from the article: renting a property for the long term is about a relationship between the landlord and tenant. Jumping on opportunities to charge your tenants late fees might not be the best strategy.  Sometimes, a grace period beyond the “standard grace period” written into most contracts is a good strategy to show your tenants you appreciate their otherwise steady payment history.  So, here’s the thoughts, in no particular order.  Feel free to weigh in with your own!

Don’t Jump at the Opportunity to Charge a Late Rent Fee

All of us have forgetten to pay a bill.  Every adult I know has forgotten to make a payment on something, sometime.  It might be utilities, credit cards, a mortgage, cable, telephone, a friend, etc.  Until recently, people had to write checks for each bill.  Nowadays, we have online bill pay, automatic drafting from checking accounts, credit card payments, etc.  All of these mechanisms are there to help us pay the myriad of bills we face.  Why? Because it’s easy to miss a payment, even for the most responsible among us.

If your tenant has been renting from you for some time with no late payments (we think 6 months with no late payments is a good rule of thumb), you should cut them a break for being late.  The day after their payment is late, give them a call on the phone and remind them (gently).  Tell them you’re happy to waive the late fee if they bring the payment over in the next 2 days.  People like to know that they’re doing business with reasonable people. Its reasonable for someone to make an error every once in a while and need a reminder, even though they are otherwise very responsible. Good tenants will recognize the gesture, and they’re more likely not to hound you every 6 hours if their air conditioning goes out :-)

When to Charge Late Fees

There are times when late fees are appropriate.  Late fees should be imposed when tenants are chronically late on payments (more than twice in a 4-6 month period) or when tenants are very late on payments (more than 7 days after the grace period ends).  The extra motivation that a fee provides may be just the thing that makes your tenant more responsible.

That said, if you’re in a situation that merits charging tenants late fees, you’ve probably got a bigger problem.  People who pay their bills late on a regular basis do so because bigger issues are present in their lives:

  1. They may not have the money in their budget to make rent payments.  Perhaps they stretched to make the first few payments and are now struggling to make ends meet, or there was a change in employment status.  If not repaired, this problem will escalate quickly into an eviction situation.
  2. They may be irresponsible with their money, and possibly in other areas of life as well.  For instance, they may be more likely to damage your property, which could cost thousands more than mere late payments.

How to Charge Late Fees

If you decide to impose a late fee on your tenants, you should notify them in writing of the delinquency of their account/payment and the need to charge them a late fee.   The late fee must be consistent with the terms you agreed to in the original lease agreement (see below).

You should send the notice via registered mail and retain a copy of the letter you sent for your own records.  If you find yourself in an eviction situation down the road, a paper trail will be essential to ensure you don’t end up on the wrong side of the law.

One last thing on this point: the letter you send should be based only on fact, not opinion.  There is no need to accuse the tenant of anything more or less than being late on their rent.  If the issue ever goes to court, you want to have clean, appropriate documentation to support your case.

Potential Late Fees Must be Written into the Lease Agreement

You must clearly lay out potential late fees to your tenants in their lease agreement.  Your jurisdiction may allow you to charge a late fee or interest even if you don’t have this clause, but it will dramatically simplify your situation if you do.

Make the terms under which a late fee can be charged, and the amount of the late fees very clear in the lease agreement.  This lease agreement includes some example language.

Late Fees May Be Limited by State, County, or Local Law

Many jurisdictions have limits on the amount of late fees you can charge.  Some districts limit the fees by a percentage of the amount due, others limit it to a flat fee like $50.00 for late payment.  For instance, Maryland limits late rental charges to 5% of the amount due.

Jurisidictions will also limit the amount of interest you can charge in addition to any late fees that are levied.  In general, these limits are lower than limits imposed on credit cards, so you should check with your county/state Government to determine the actual limits on late fees.

The Bottom Line

Charge late fees only when they make sense for the situation.  Write the terms of late fees into the rental agreement, and always communicate adverse information clearly, concisely, and in writing with your tenants.  Best of luck to all the independent landlords out there!

What do you think? What’s your late fee strategy?  Have you dealt with chronically late renters?  What strategy do you use for your own properties?

Photo courtesy of PacDog.

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18 Responses to Advice for Landlords: When to Charge Tenant’s Late Fees

  • Joanne responds...
    August 14th, 2008 1:33 am

    We had taken a chance on three fresh-out-of-college 22 year olds to fill our old condo unit (I know, potential disaster in the making, but they all had decent jobs and references).

    We expected there might be an occasional problem as they all worked to better establish themselves, but the rent was late every single month. Due on the first, grace on the sixth, but sometimes not received until after the 15th. We finally invoked the late fee and a gently admonishing letter to remind them of the terms, but I think they took it too personally. It was hard to talk with them after that. And none of them wanted to rent again this fall, so we have to search for tenants again.

    They weren’t bad kids, and actually took decent care of the place, so I would have rather worked it out with them than to see them go. That said, I’ll have to be honest when other landlords call for a recommendation, and say “yes they always paid the rent, but it was always late.”

    As far as communicating with our tenants, we generally use e-mail, as it’s less confrontational if there is a problem; this creates a written record as well. We’ll follow up with phone calls on important things, but this way nobody is blindsided.

    We have renters in our two-flat as well as the condo, and they live upstairs from us; they’ve never given us a problem. In fact, they’re working to improve the unit with fresh paint and repairs. But, although I see them most days, we still use e-mail to communicate building issues, so there is always a written record.

    [Reply]

  • Fred responds...
    August 15th, 2008 7:18 am

    Joanne,

    It sounds like in your case you were probably more than reasonable. Its hard to predict when being a little firmer will push someone away.

    I like the idea of e-mail, but I would want to have that written into the lease agreement as an official form of communication before I used it for anything that I wanted a record of. If I had that, it certainly is a much better way to communicate than paper – saves you the postage, and the photocopying of the original letters. I think we’ll probably add that in next time around.

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  • tinkerbell responds...
    January 3rd, 2009 6:07 pm

    Jan. 1, 2008, we rented out a house to an unmarried couple (in MI.). Each had a teenager. We were in a hurry to get the house rented (my husband had just gotten layed off for the winter and money gets tight), and were not carefull enough to get references, credit check, ect. before letting them move in. The contract that we (both tenants, and I ) signed was one that I had drawn up and I had overlooked a late rent clause. I gave a $50 early pay incentive, which we have found in the past, to be suffecient and late rent wasn’t in the picture. This couple asked if they could just use the “early pay incentive” as pet rent and keep their rent at $700 a month. We agreed. They had been good about paying rent until this last fall. Oct came late, but paid. Nov. was later, but eventually paid. Only $200. for Dec., and now we are into the Jan with no payment. We had also agreed to let them make installments on their deposit of $1000.00 which they have a balance of $650.00 due. Can I write up an adendem to the rental agreement for a late fee? And how much can I charge for that? The male tenant told us that any damages that they did, he would fix because he is a handyman by trade. I have sent them 1 letter by regular mail asking for more rent and explaining that I have seen quite a bit of damage done there while doing a “drive by”. I have also sent 2 letters by return-reciept-requested mail, which they have neglected to sign and pick up from the post office. We can not really afford to go to court right now to evict them, and we do understand that here in Michigan, it’s hard to find work. But we have bills that need to be paid as well and don’t want to get behind. If we do have to evict them, do we need to get a lawyer? How much should we expect to pay for our expenses (an average ball park figure is good) like court costs. And if the court would rule in our favor, what expences could we possibly expect to retreive?

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  • Michele responds...
    February 12th, 2009 12:50 am

    My husband and I have a seller financing agreement on a mobile home. We adjusted the payment down one entire year for the couple. But they are chronically late on rent (last month it was 23 days). We have tried in the past to reduce some of the late fees. But this month we finally wrote them a letter saying that we will require the late fee payment which is in the lease. It seems that the monthly payment was always at the bottom of their list (probably because we would work with them on the late fees). But it was just time to impose all the late fees allowed for in the lease. Sometimes you can be too kind as a landlord.

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  • Jacque marshall responds...
    May 28th, 2010 3:53 pm

    can I charge a late fee for a utility that the lease says should be the responsibility of the Tenant? Or Can I include the late fee as a fee attached after the rent is paid, in other words can I apply a late fee for the utility that is not paid even if the tenant pays the rent on time?

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  • Tina responds...
    January 3rd, 2011 6:41 pm

    Can your lanloard charge late fees every month for bening behind on your lot rent in the past? I had a balance that landlord said I owed I disputed it .They sais I owed 980.00 I told them to show me proof and they wouldnt, So then after I conplained to the owner they dropped it 700.00. So I would owe 280.00. I stilled said show me proof. They said no, So they have charge me late fees for that every month since Jan 9 -09 35.00 Did not know untill dec.6 2010 when I got my court paper and seen how high there amount was they said I owe. I met with them in there office and there is almost 1000.00 in late fees. What can I do?
    Please help..
    Thank you

    [Reply]

  • Fred responds...
    January 3rd, 2011 7:29 pm

    Tina, please explain what their justification is for the fact that you owe them money? Is this back rent? Was it for repairs? What was the basis of their claim?

    [Reply]

  • Georgina Bolosan responds...
    March 11th, 2011 4:57 pm

    Who keeps the late fee — the owner or the realtor? We reside in California and have a rental in Hawaii, Our realtor charged $10 per day and is capped at $100. After receiving part of the rental, the realtor kept the late fee and forwarded the rest to us. Is this right? Thank you.

    [Reply]

  • Fred responds...
    March 11th, 2011 6:50 pm

    Georgina, it would depend on what your contract with your Realtor says. Usually in situations with shared loss, the fees would be split. I have seen situations where Realtors get “half” of penalty-like fees, but I’ve never seen that they get to keep all of it. Check your contract.

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  • pappey88 responds...
    April 14th, 2011 1:29 pm

    can you carry over late charges each month.

    [Reply]

  • Christina responds...
    May 7th, 2011 7:47 am

    I am looking to implement my late fee of $50 to my tenants because they are late every month. What type of record do I need to keep to prove the reason for the late fee? They always write the 1st (which is the due date) on the check.

    [Reply]

  • Lee Lee responds...
    December 24th, 2011 9:06 pm

    In the state of Georgia, if there is a verbal agreement between the Landlord and tenant to pay the rent a few days late and the late fee would be waived. But the rent check is not processed until a few days later. Then a letter arrives invorming me that I owe $125 in late fees because it was late. After speaking with mone of the managers, I went into the office and she reviewed on the computer that therre was an agreement with one of the managers to pay the rent on the 5th and the late fee would be waived. She later informed me that the rent check was processed on the 8th and therefore the late fee was imposed. I don’t believe I owe a late fee.

    Later I was informed by management that I could get on a payment plan. I refused to get on a payment plan for something I don’t owe. I was later informed that if the late fee was not paid withing 72 hours additional fee will be added.

    I believe I should write the owner as well as the property manager. I am not certain why the rent check was preocessed on the 8th. I did not get a receipt. My bank statement is usually my recept.

    Any suggestions would be helpful. I may have to go to news on your side.

    Thank you.

    Lee Lee

    [Reply]

    Fred Reply:

    Lee Lee, I’m not a lawyer, but here’s a few observations/recommendations:

    1. Never rely on verbal agreements. Even if its getting something scribbled down on paper, write it down. It’s good that it was in the computer.

    2. Rent is considered paid when the check is turned in, not when it is processed. However, if you turned it in AFTER close of business on the 5th, and the 5th was a Friday, and then they processed it on Monday the 8th, they could have a legitimate claim. You should check what the normal rent payment policy is for after-hour check submissions. They may say that checks received before 4:00pm are processed same-day, but checks received after 4:00pm are processed next-business-day.

    3. $125 late fee sounds excessive. Make sure that in your jurisdiction, $125 is legally OK to charge. In our area, late fees are limited to 5% of the rent due.

    4. I think writing the owner is a good idea, especially if your rent has been otherwise current during your stay and you are a good tenant. Just make sure to use the right tone in the note. If it really is your fault you were late, take responsibility for that, but ask them to waive the fee based on your other record.

    Hope that helps.
    Fred

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  • April responds...
    May 10th, 2012 4:28 am

    I moved into my apt. on the 27th of march and my landlord never mentioned a prorated rent or a deposit on the electric… I paid my full rent to move in (no deposit required) and moved in. On the 30th of april I got a 5 day notice for the prorated rent and electric deposit. I tried to call him with no answer but got ahold of him the next day. I paid him the prorated rent and electric deposit only to be 290.00 short on rent because of it. He made an agreement with me to pay $50 a week until my next check and pay off the rest and pay junes rent. a few days later he asked me to come in to sign a promissary note where he mentioned I would have to also pay a $25 a DAY late fee to total $700 when I got my next check on the 28th. Is this legal in Arizona?

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  • Kacie Ricks responds...
    June 7th, 2012 8:57 pm

    We have a tenant who habitually pays rent on the last day of the grace period. Throughout his 3 year lease, he has several times paid late and not included late fees (that are noted inlease agreement). Can we deduct all the late fess from his security deposit when he moves out?

    [Reply]

    Fred Reply:

    Kacie,

    Unfortunately, laws vary by state, county, and even town, so you have to be careful. My gut tells me that since most laws are designed to protect the tenant, if you haven’t been billing them for late fees along the way, you can’t now take those fees out of their security deposit. This underscores the need to notify and follow up immediately on issues like late payment with tenants.

    Even if you had notified them, some counties prevent landlords from taking fees out of security deposits. Others require that the lease specifically says that the landlord has the right to use the security deposit for such purposes, and if it doesn’t the tenant is protected.

    You may be able to find your state’s and counties laws online.

    [Reply]

  • Sharon responds...
    September 2nd, 2012 11:48 pm

    My lease is due every month on the first no later than11:59 pm on the third. I have to mail my rent to a P.O box at the post office. I always pay my rent in full plus late fees if needed. I take it upon myself to drive to the post office on the third of Aug to mail my cashier check to that P.O box. I get a letter in the mail by the property management on Aug 28, telling me that I owe them 95.00 in late fees, because rent wasn’t received till August 6. I can’t find Texas homes rental laws on line. Do I really owe them late fees, when they have the full months rent and one day late fee?

    [Reply]

    Fred Reply:

    Sharon,

    In general, you are responsible for getting the payment to your landlord by the due date. It’s not like a tax return where simply getting it postmarked in time is valid. Instead, the landlord actually has to receive the money for them to be required to count it. Most leases will say that you have until a certain time each day to get the money to them (e.g., 2:00pm, 3:00pm, etc.)

    So, if you’ve been calculating the late fees based on the day you mail the payment, and they’ve been calculating them based on the day they receive it, they could very well be entitled to the money they are asking for. I suggest reading your lease agreement. Also, if they have an auto-debit program or a way for you to deliver your rent check in person, that might be a better solution.

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