You've found tenants, signed the lease papers and moved them in. But what happens when tenants pay rent late? Majority of landlords and property managers will experience this throughout their career and charge what's known as a ‘late fee’.
Fees for late rent payments are generally based on a certain percentage of a tenants' monthly rental rate (normally between 5% and 10%) or are charged as flat fees.
Landlords, property managers, or property management companies can only impose penalties in accordance with the terms of a lease agreement. If lease agreements do not include clauses that mention late fees, property managers cannot demand tenants pay penalties for overdue rent payments.
Check local and state laws for acceptable late fee charges and calculations. Whether its charged as a flat fee or a percentage of the monthly rent, there is a maximum amount that can be charge each month in late fees. Late fees shouldn't exceed more than 10% per month.
According to James Laughlin, specialised in the real estate rental industry, a general fee of 5% of the monthly rent is considered reasonable by courts of law. Additionally, landlords are expected to provide at least five days of ‘grace period’ before considering that rent is late.
Although landlords won’t fine tenants during ‘grace periods’, the payment of the rent is still considered legally delinquent. Normally, rent should be paid on or before the established due date. This is a clause that is included in all lease agreements.
Late Rent Fees and Lease Agreements
A lease agreement should outline all the terms related to rent payments. This includes late rent fees policies. A high quality lease agreement should include:
- The monthly rent
- The due date of the monthly rate
- What happens if the due date of the rent happens to fall on a holiday or a weekend
- Where and how the tenant should pay the rent (online banking, mailed, etc)
- Whether or not there’s a grace period before the rent is considered late
- What happens if the tenant pays the rent late
- How will the tenant be charged and how much he will be charged for paying the rent late
- What happens if the tenant doesn’t pay rent at all (this includes the tenancy termination details)
You should take into account all state laws that might apply to your situation and manage a property accordingly. It is also a good idea to work with a solicitor who is familiar with the real estate market and the laws that apply to renting properties in your state. An solicitor can also review lease agreements and the clauses before all parties sign them.
I overlooked my tenants’ late fees once, and now they always pay their rent late
More common than you’d think, never overlook the terms of a lease and always implement the late fees as soon as the ‘grace period’ has passed. If tenants realise they can get away with paying rent late without having to pay any extra fees, they are likely to repeat this behaviour.
The best course of action is to discuss the matter with your tenants, let them know that you cannot overlook them paying rent late again and that you will have to charge them fees as outlined in the lease agreement. Consider sending an official letter emphasising the lease agreement and explaining the situation.
Communication is key
Don't delay, talk to tenants as soon as you notice a pattern in their rent payments. In some cases, tenants might receive their salaries after the rent is due. Discussing the matter with them may help solve the issue.
If reasons for paying rent late are legitimate, then there is no need to implement late fees, as you can make an understanding to change the rent’s due date.
In other cases, tenants might not be aware of the fact that their late payments can affect your business. It’s always good to explain to them how important paying the rent on time is for you.
If you are a tenant and are currently having issues with your rent payments, the best course of action is being honest with your landlord or property manager. By communicating about rent issues, you might get to an agreement that works for the both of you.
Can implementing late fees be illegal?
Yes, if fees and their values are not included in the lease agreement that was signed by landlord, property manager and tenants, then collecting fees from tenants who didn't pay rent on time is illegal.
Courts will only allow landlords to charge a late fee that is less than 10% of a month’s rent.
If you’ve signed a lease or rental agreement that and you realise later contains unfair policies, you can stop paying the fees and challenge the clause in court. If a landlord is trying to evict you for breaking a lease stipulation, they might be breaking the law.
Whether you're a property owner or property manager, make sure you're current with housing laws and regulations related to the real estate rental industry.
The maximum amount a landlord can charge for rent, property management fees, and late rent fees can also differ from state to state. Discussing with a solicitor who specialises in rental law can be a great idea.
Not sure what laws apply to your property, seek professional advice from a local expert. Sign up to Bricks + Agent newsletter today for top rental tips and advice!