Renting out to tenants can be very complicated at times.
One of the worst things that landlords have to deal with is an irresponsible tenant. Although tenants agree to a set of terms in the lease agreement, they do not always comply with them throughout their lease.
A very common thing that landlords must deal with is a tenant who does not pay rent on time. Paying rent is the most essential part of renting out a unit because it is what allows a tenant to remain on the property.
When rent isn't paid on time, or at all, the landlord or property manager must find a way to deal with it. And the way that most choose to deal with it is by charging late rent fees. These late fees are governed by local landlord-tenant laws but are mostly governed solely by the tenant.
In this guide, we will be going over what late rent fees are, how to calculate them, and other helpful information.
Let’s start with what late fees are and when they are necessary.
What are Late Rent Fees?
A late rent fee is a charge landlords or property managers impose when the tenant makes late rent payments. These fees deter the tenants from being late on paying their monthly rent.
Although a late fee seems pretty straightforward, every situation is different in some way. This is why it is important to analyze your own case to be able to determine how to handle the late fee for rent.
One of the most important steps in charging a late rent fee is to make sure that it is specifically listed in your lease agreement. If it is not listed in the lease or rental agreement, the tenant can legally refuse to pay up.
Deciding how to add it to a written lease agreement or rental agreement brings up the first major question:
Should you even charge late rent fees?
In the next section, we will be going over some of the reasons why you should or shouldn't include late rent fees in the agreement with your tenant.
Should Landlords Charge a Late Rent Fee?
Whether or not to even include a late rent fee in a lease agreement is a hard decision to conquer for landlords. There are many things that must be considered surrounding late rent fees and it is important to consider the effectiveness of it as a whole.
One of the most significant things to consider when deciding whether or not to include late fees in your agreement is that it could serve as an incentive to pay rent on time. This means that the landlord will not receive a late rent payment as often. After all, landlords and property managers need to collect rent in order to keep up with their own financial obligations.
However, there are still ways to consider the needs and personal life of the tenant while still incentivizing on-time payments. An example of this includes offering the tenants a grace period. A grace period is a period of time after the due date that gives the tenant a few extra days to come up with the late payment. This way, the tenant pays late by only a couple of days but is not penalized for it.
The other side of the coin is that, if you decide to not charge a late fee, your tenant may take advantage and get into the habit of making late payments. For this reason, you need to create clear boundaries in the form of a late fee clause included in the lease agreement.
So, now that we have gone over some of the reasons why a landlord would want to charge a late fee, let's go over how to determine the amount that should be charged.
How Much to Charge as a Late Rent Fee
If you have made up your mind and want to include late rent fees in your agreement, the next step is to determine how much you should charge. This amount varies greatly from landlord to landlord and much of it depends on the rental property and how much the monthly rent is.
Below, we will be discussing some of the most common ways to charge late fees.
Percentage Fee Method
One of the most common ways to determine how much to charge for late fees is to use the rent payment. Typically, the late fee is five percent of the monthly rent or less. For example, if the rent payment on a certain property is $2000, a fair late fee could be $100.
However, landlords must be careful with this method as there are some late fee laws that dictate how much a landlord can charge if the tenant pays rent late. Want to learn more about your state's specific limits on late fees? Visit this site to learn about your state laws regarding late fees.
Flat Fee Method
Another common method that landlords use to charge late rent fees is by having a flat fee. This method involves setting a flat fee that will be charged as soon as rent is late or the grace period has passed. This fee is determined by the landlord and can range in amounts, but must also comply with the law.
This method is not very convenient for the tenant at times because it may not be fair in some cases. If they pay one day late, they will be paying the same late fee that they would pay if they are ten days late. This takes away from the incentive to pay the rent faster as they will need to pay the same fee nevertheless. This is why many landlords choose to stick with the next method.
Some landlords choose to use a daily method to determine how much to charge for late rent fees. The way that the daily method works is that for every day that the rent is late, the tenant must pay a certain amount. Apart from this, there is typically a maximum late fee that should be charged.
For example, a landlord can choose to charge $10 per day that rent is not paid with a $100 maximum. This means that if the rent is 5 days late, the tenant will only owe $50. The maximum fee that is charged with this method must also adhere to the same laws that apply to the other two methods.
So, now we know all about late fees and the best ways to administer them, let's go over some of the best ways to enforce them and encourage your tenants to pay on time.
How to Enforce Late Fees
After determining all the necessary information regarding late fees, it is time for the hard part. Dealing with difficult tenants is something that tons of landlords have to deal with. In these cases, there must be a plan in place to make sure that the tenant is informed about the late fee policy and aware of the consequences of not paying rent on time.
Below, we have gone over some useful methods to enforce your late fee policy and make sure that the tenants comply as well.
Including the Late Fee Policy in the Lease
This step is extremely important and should be pretty obvious. Legally, if you want to impose late rent fees on your tenants, this is a required step. This is because your tenant does not have to comply with anything that is not part of the lease agreement.
If the late fee policy is not specified within the lease agreement, the landlord has no way to justify their actions. Therefore, it is vital to specifically outline any policies regarding late fees in the agreement.
Another useful way to make sure that your tenant is mindful of when rent is due or that they have been charged a late fee is by reminding them. Sometimes, the tenant has genuinely forgotten to pay their rent and may be a day late. In this case, it is always helpful to remind them that they still owe you rent, but also that they are protected by the grace period.
Then, if they still have not paid, landlords can kindly remind the tenant that they still owe the rent and are also being charged a late fee. These reminders should be administered in the way that is most common between both parties.
Being a landlord has never, and will never, be an easy task. There are countless things that need to be dealt with and when things get in the way, a lot of problems can be caused. That is why it is important to have a backup plan and make sure that both the landlord and the tenant comply with it. So, after reading through this guide, you should be more than prepared to make a decision on late fees and start collecting today!