When it comes to property management, handling late rent payments and enforcing late fee policies is a challenge. No one enjoys paying fees, and renters often find them unfair. But late fees are an important incentive that help ensure renters pay on time.
If there are no consequences to paying late rent, your financial planning becomes difficult or downright impossible. Managing rental properties is a business, and you rely on the income from rent payments to keep your business running smoothly.
What can you do when a renter pays late? You can add a late fee to the next month’s rent (if it’s not paid with the late rent). But what happens when your tenant refused to pay late fees? This article will cover that and more, so read on to learn what you can (and can’t) do when a renter refuses to pay a late fee.
Key Takeaways:
- Create a clear lease agreement with a late fee policy
- Maintain effective communication and documentation
- Include an Allocation of Payments clause
- Consider security deposit deductions for repeated offenders
- Eviction is not justified by late fees alone
- Document late payments and associated fees
- Ensure your lease agreement includes a clear late fee policy that complies with state laws
Write a Late Fee Policy into Your Lease
First and foremost, you’ll want to write a tenant late fee policy into your lease. This way, a tenant cannot claim that there is nothing about paying late fees in their lease. With Apartments.com, you can automatically bill late fees to encourage your renters to make payments on time.
Before you add a late fee policy, check with your current state laws – you may find that you are restricted on the amount you may charge for a late fee, and how long you have to wait before you can charge your tenant with said late fee. Make sure your lease can hold up in court by following your state laws! Though state laws vary, it’s common that you must keep the late fee at 5% (or below) of the amount you charge for rent. If you’re charging a tenant $1,200 in rent, then the late fee can’t be more than $60 a month.
Some states may require that you include a grace period with your late fee policy. For example, in Arizona, there's a five-day grace period. In Maine, the grace period is 15 days. If you're unsure of what your state requires when it comes to paying late rent fees, be sure to contact a real estate attorney to make sure your lease policy follows legal guidelines.
Calmly and Professionally Remind Your Tenant
It’s vital to keep things civil and on a positive (as possible) note with you and your tenant. After all, they may have genuinely forgotten to pay the late fee. It happens! Simply give them a written notice that they forgot to pay their late fee. If they respond and pay the late fee in a timely manner, it may be best for you to let this go, especially if this tenant has been a good one. Don’t simply assume the worst.
However, if your tenant is well aware of the late fee they owe, but fail to pay it, and tell you that they do not intend to pay it, then you will have to take this a little more seriously. It’s not a very good sign if a tenant refuses to do something that is very clearly stated in the lease. If you pay your rent late, you owe a late fee.
Include an Allocation of Payments Clause
Now that you’ve added a late fee policy to your lease and calmly reminded your tenant, you’ll want to consider adding an allocation of payments clause to your lease as well. This clause informs tenants that any money you collect for rent the following month will go toward any unpaid fees (late fees) from the previous month.
Because you are charging a rent of $1,200, and your tenant has accumulated $60 in late fees, they owe you $1,260 for the following month’s rent (unless you make them pay that before the next month’s rent is due – it depends on what you put in your lease). If your tenant only pays the rent amount, $1,200, without the additional late fee they owe from the previous month, then you will put the rent amount towards paying the $60 that they owe you for late fees. After you’ve done so, you will then apply the balance that is left towards that month’s rent. Rather than owing you $60 in late fees, now your tenant owes you $60 in rent. This may seem like a complicated circle, but it’s the best way to get things done lawfully.
Withhold Late Fees from Their Security Deposit
Maybe you’ve come to an agreement with your tenant and you’ve forgiven the late fee(s) that they owe you. If they’re a first-time offender, and have been a good tenant thus far, it may be in your best interest to keep a positive relationship. Simply give a fair, stern warning that you will, without a doubt, be charging them a late fee if this happens again.
But if this tenant has caused issues for you in the past, and you’re unwilling to let this late rent payment slide, then you have one last option. You may take the late fee out of your tenant’s security deposit. But you cannot do this without hitting obstacles, of course.
Your tenant will likely be unhappy with you doing so, so you’ll need to give your tenant a proper, written notice as to why you’ve had to take money out of their security deposit. You’ll want to document the instances in which the tenant paid rent late, how much they owe in late rent or fees, and the date on which they were supposed to have paid them by.
It’s best to avoid any arguments with your tenants, so try to keep things civil. Many renters may wonder if you can be evicted for late fees, and the shorter answer is, no. Late fees are not considered cause enough for eviction. Remember that evictions cost you time, money, and effort, so if you’re still getting your monthly rent, try not to take late fees too seriously. After all, if you follow the allocation of payments clause, the tenant will owe you the late fee turned rent at the end of their lease anyway (unless you take it out of their security deposit).
As long as you implement a late fee policy and allocation of payments clause into your lease, and give the tenant a fair and firm warning, you’ve done what you can to prevent or solve this situation. If a tenant is late on rent, then they will be charged a fee for paying rent late – that’s the name of the game and the terms of the lease!
This article was originally published on September 13, 2019.
