Every lease should contain a clause that addresses when the rent is due and what happens if it is not paid by that date. Most leases offer a grace period where after a certain number of additional days a penalty, often called a late fee, is applied. With the additional amount of the late fee, added to the rent, the tenant must make a larger payment or face the possibility of eviction. It’s not uncommon to hear from the tenant asking the landlord to waive late fees.
Many tenants, who have incurred a late fee, will just pay the amount of the rent only and act like the late fee does not exist. This starts a process where the balance due on their account is never paid in full. Sometimes it might seem like waiving the late fee is the easiest way to address the ensuing accounting mess. There might also be the concern about upsetting an otherwise good tenant by enforcing these penalties. Waiving late fees is a slippery slope and here are five reasons why you should not make that decision.
Encourages a bad habit
Each month that the tenant does not make full payment of the rent and late fees, the deficit grows. The lease ideally will state payments received are applied to the oldest charges first. The late fee from the previous month is paid and then some part of the rent gets covered with the remainder of the payment received. So, another late fee is charged and now the tenant is behind the balance of the rent payment that did not get covered in the current month and the new late fee. The reality is their lease is in a constant default status. Technically, a notice to pay the balance or be evicted should be posted to settle the matter. It’s tempting to waive to not enter this accounting mess. Yet, to waive late fees to keep the accounting cleaner is encouraging your tenant to expect such treatment every month. The expectation may lead to further disregard of the due dates as there is no longer concern about late fees.
Tenants may start to feel other terms of the lease may not need to be taken seriously
Stress to all tenants that just because there is a grace period for late charges to accrue – the rent is still DUE on the first of the month. Therefore, it becomes “Late” if paid after the first. This is why it is considered late even if a grace period exists in the lease. Some tenants seem to think that the late fee can be ignored. They pay the regular rent on the first day after a grace period and ignore the follow-up requests for the late fee. Most owners do not start an eviction over an unpaid late fee. Communications to the tenant need to include a clear indication that they legally owe this amount and if they continue to ignore it, a judgement will be obtained making it much more difficult in the future to lease a home. If a decision is made to waive late fees, the tenant may feel free to ignore other provisions of the lease, thinking those too will be waived in the future.
The lease needs to state the rent must be received in the office prior to the end of the grace period or a late fee is due. Provide a tenant the option of electronic payments to include a monthly ACH withdraw from the tenant’s bank account. This is a wonderful service for an owner as it ensures we have real funds and a settlement can occur without a lengthy holding period. As with every term in the lease, make it clear and enforceable. Provide options that can assist the tenant in performing to the terms of the lease.
The best action is to set expectations early and hold the tenant accountable. This is a much easier path to defend than being easy-going at first and then try to go strict once bad habits are formed. Don’t wait until you learn there is an unapproved pet in the home to then start actually enforcing the late fee penalty.
Once you waive a late fee for one tenant it all becomes subjective
There are different opinions on whether a landlord should occasionally agree to waive late fees. If the tenant is long-term; has a good payment history and communicates up front then the pros might outweigh the cons. Require any tenant who states they will be late to send a written explanation (not a text message). If they are going to be late, the communication needs to state a reason why and when they are going to pay. Some landlords like to offer a one-time waiver if the tenant has been conscientious and normally pays on time. Others believe a waiver is earned only after the tenant has have been a resident for a certain number of months with no problems
If you enforce the late fee penalty for one tenant, and not another, it shouldn’t matter. But reality says it will. If one tenant hears you were gracious to his neighbor but not to him, he’ll probably respond to your generosity by complaining at best or suing you for unfair treatment at worst. It isn’t fair to pick and choose who gets a late fee waived and who doesn’t. Every tenant needs to be treated equally, with no one getting special consideration. By the terms of the lease, unless you build language in that says otherwise, there is no advantage for a long-term tenant over a relatively new one as to how a lease is to be enforced. I hope your lease does not have a term that favors any tenant over another simply because they haven’t established the same relationship with the landlord. The only fair way to handle things is to follow exactly what the lease dictates with all tenants.
Might encourage the practice of future short paying the rent
One other issue is tenants who “short pay” or do not pay the full lease amount. They too are considered late as the balance was not paid in full. Tenants need to understand a partial payment is not a full payment. A late fee applies to a balance remaining due on an account after a due date. Most consumers have credit cards so the concept is not unique to them. There is little accounting benefit to a tenant making a short payment for the rent unless it is part of an agreed payment plan with the landlord.
Tough to defend in a contested eviction hearing
It is tough to defend the landlord who month after month allows late payments, and waive late fees, only to one day decide they have had enough and are going to evict. As the outstanding balance grows with no collection efforts, your case to eventually crack down or receive judgement in an eviction is weakened. It also is a difficult case to evict only based on a balance of late fees that have not been collected. There needs to be documented aggressive collection methods that have been attempted every month.
Notice of a late fee should be delivered to the tenant both electronically and by mail delivery. As the balance grows the tenant may start to argue about the late fee. Stick to the language of your lease and the tenant should reluctantly decide to make the payment required to bring the tenant ledger current. It’s the tenants that decide these charges are just not right and refuse to pay them that cause a decision whether to evict. If ultimately that is the decision, there are usually more factors than just the accumulating late fee. By having a clear lease, being consistent in your procedures, and providing notices to the tenant, you will be in a much stronger position if the tenant wishes to argue to a Judge about the validity of the late fees.
Late rent is a common occurrence. There should be a penalty to the tenant. The responsibility is theirs and late fees are penalties they can avoid. As their landlord, choosing to not waive late fees is the wise choice to avoid future problems.