Charging a late fee can be one way to get tenants to pay their rent on time. There are certain things you must consider when charging this type of fee, including when rent is considered late and the actual amount you will charge the tenant for a late payment. Learn the steps in the process for charging a late fee.
Why You May Charge a Late Fee
If a tenant does not pay their rent on time, you should charge a late fee. There are only a few states that will not allow you to charge your tenants a late fee and others that will set a maximum amount on the fee you can charge, so make sure to check your state's landlord-tenant law. Three reasons a late fee is beneficial:
- Landlord's Bills Are Due - It is important that you receive your tenants' rent on time because you have bills to pay as well. If a tenant is not paying their rent until the tenth of the month and you have bills dues on the fifth, you may have difficulty making your own payments.
- If Tenant Falls Behind on Rent, Hard to Catch Up - Once a tenant falls behind on their rent payment, it becomes that much more difficult to pay rent on time the next month.
- Late Payment Will Become Habit - If there is no penalty for paying rent late, then there is no incentive to pay rent on time. Therefore, a tenant could easily get into the habit of paying rent on the fifteenth of the month, instead of on the first.
Decide When Rent Is Considered Late
You must decide when a rent payment is considered late. You must make it clear in your lease agreement that any rent that is not received by “X” date will be considered late. You must check your state's landlord-tenant laws because some states will require you to give tenants a grace period, while others do not.
If your state allows a grace period, you may decide that rent is due on a specific date with no exceptions or extensions. If the rent is due on the first of the month, then any rent received after the first of the month is considered late.
You may decide that you will give tenants a window of time where they can pay rent without penalty. If the rent is due on the first of the month, but you offer tenants a five day grace period, then any rent that is not received by the fifth of the month will be considered late.
Late Fee Amount
The amount that you charge for a late fee should vary based on the price of the rental. A $50 charge for a late rental payment makes sense for a $1000 a month rental. For someone paying $5,000 a month, a $50 late charge will not seem like much. In this case, something more in the $250 range would be sufficient.
Certain states will require you to charge no more than a certain percentage of the monthly rent as a late fee. For example, in Maine, you can charge no more than four percent of the rent as a late fee.
When to Collect Late Fee
The details of the late fee must be included as a clause in your lease agreement. This includes the late fee amount and the fact that the late fee will be collected at the same time that late rent is paid.
Accepting Partial Payments
You must decide if you will accept partial rent payments. A partial payment means the tenant pays their rent in installments, such as half on the first of the month, a quarter on the fifteenth and a quarter on the twentieth.
You must check your local landlord-tenant laws. In some states, accepting a partial rent payment alters the terms of the lease agreement. Whatever amount you accepted could be considered the new monthly rent for that unit. In addition, in some states, once you accept a partial payment, you can no longer collect any additional money from that tenant for that month.
There are good and bad aspects of accepting partial payment. The good part is that at least you are receiving some money. The bad is that once the tenant falls behind once, it will be that much more difficult for them to make their next rent payment on time. Accepting partial payments is also bad because, in some states, if you accept partial payment after you have filed to evict a tenant, you have to begin the eviction process all over again.
Some landlords accept partial payment and some only accept the full amount at once. You must decide what will work for you and your state laws.
Dealing with Non-Payment
If a tenant does not pay their monthly rent, you must file to evict the tenant. State eviction laws will vary.
In some states, you can file the eviction immediately after the missed payment. In other states, you must first send the tenant several notices, including a Notice to Pay Rent or Quit, before you can begin the eviction process. You should begin the eviction process as soon as your state laws allow for nonpayment because it often takes more than a month to actually evict a tenant.