Landlord Basics: Late Fees

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(This post is part of our “Landlord Basics” series, which seeks to help the new landlord / investor understand some of the basics of tenant relations and property management.  Click here to view the entire Landlord Basics archive.)

In a perfect world, every tenant pays their rent on time every month.  However, the last time I checked, we don’t live in a perfect world.  Assessing a late fee shows your tenants that you are serious about the rent being in on time, every month.  Please keep in mind that the laws regarding charging late fees vary from state to state and in some cases city to city, so you will want to check with your local board of Realtors or lawyer to see how the laws affect you.

If you intend to charge late fees, they need to be addressed to the tenant in the lease.  At the lease signing, be sure to explain to the tenants that a late fee will be assessed if their rent is late, and that the late fee and rent must BOTH be paid in full.

Enforcing the late fee can be difficult.  Tenants will come to you with a huge array of reasons that the rent will be late.  Some of these stories will be downright hilarious, and some will be incredibly sad.  Keep in mind that if they don’t pay their credit card bill or utility bill, they will be assessed a late fee.  Why should their rent be any different?

That may sound callous, and to an extent it is.  If you have a tenant who has been on time or early with their rent for several months, you may be inclined to waive the fee one time.  There is nothing wrong with this, but be diligent in your reasons.  My suggestion is to charge them the late fee, and then credit back to them the amount of their late fee, so that their account ledger shows that a late fee was charged and that it was waived as a courtesy.

Another option you may want to consider is establishing a payment plan with your tenant.  This will help them understand that rental payments are important, gives them a time line to comply with their rent payments, and allows for easier record keeping.  Payment plans should be outlined on paper, and the tenant as well as the landlord should retain a copy.

Late fees, while difficult to enforce, help show your tenants that they are responsible for their rent payments on time, every month.  Keeping them on a payment plan will help guide them to get back on track, and ultimately help you keep better records as well as track tenants.

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2 comments to Landlord Basics: Late Fees

  • Kate  says:

    Very informative :)

  • […] basics such as what a lease is and what it does (here), to security deposits (here), to late fees (here).  The lease is between a landlord and tenant is so important, that I wanted to do another entry […]

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