Will a Late Fee Make Tenants Pay Rent on Time?

Steps for Handling Late Rent Payments

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When tenants fall behind in rent, it can also affect your bottom line as a landlord. Charging a late fee may be one way to get your tenants to pay their rent when it is due. When deciding on a late fee, you must consider how long the tenant has before the rent is considered late as well as the actual amount you will charge the tenant for a late payment. 

Two Reasons Rent Should Be Paid on Time

  • 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. 

    When Is Rent 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.

    • No Grace Period

    As long as your state allows it, 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.

    • Grace Period

    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.

     

    Will You Charge a Late Fee?

    If a tenant pays rent late, you should charge a late fee. Otherwise, there is no real penalty for not paying the rent on time and the tenant could make a habit of it. Check your local landlord tenant laws. A few states do not allow you to charge a late fee and some will set a limit on the maximum amount you can charge as a late fee.

    How Much Will You Charge?

    The amount of the late fee should vary based on the price of the rental. A $50 charge for a late rental payment is sufficient for a $1000 a month rental. For someone paying $5,000 a month to rent an apartment, 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 Will You Collect the Late Fee?

    The fact that you will charge a fee for late payment and the amount of the late fee should clearly be spelled out in the lease agreement. You must also state that the late fee will be collected at the same time the late rent is paid.

    Will You Accept Partial Payments?

    You must decide if you will accept partial 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.

    What Happens If They Do Not Pay Rent at All?

    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.