Many landlords dread charging late fees. Not many landlords enjoy chasing tenants around trying to collect rent and late fees. Unfortunately, it’s a necessary part of the business. And, in order to run the most effective business possible, here are some things you should know about charging late fees in 2022:
How To Collect Late Fees
While you can do it the old-fashioned way by hunting down your tenants and staying on them about paying the rent (and late fees), this is a lot of effort and the least pleasant way to go about it. You can also take late fees out of your tenant’s security deposit once their lease is up. However, this requires waiting, and your tenant isn’t made directly responsible for the late payment in question.
Thankfully the old-fashioned methods aren’t your only options. Property management software has made enforcing late fees easier than ever. These platforms will automatically charge your tenants the additional late fees if rent isn’t paid on time. You can set the late fees to whatever was outlined in your lease agreement, and you can do the same for the grace period. You can also set up customized reminders that automatically notify your tenants when payments are past due.
Legality of Late Fees
Depending on which state you’re in, you’ll deal with different laws regarding late fees. These laws regulate when and if you can charge a late fee, the maximum amount that you can charge, and what kind of grace period needs to exist. Make sure you know the specific laws of your state before you start charging late fees.
Understanding local and states laws will help you figure out how to approach late fees. Once you land on a specific amount and method, you need to explicitly state that information in your lease agreement.
How To Structure Late Fees
There are a few ways you can structure late fees. There’s not necessarily one way that’s better than another. It mostly comes down to your own preference.
- Percentage of monthly rent. Most late fees are 5% or less of the monthly rent. If the monthly rent is $1,000, for example, a late fee of 5% would come to $50, which the tenant would have to pay in addition to the $1,000.
- One flat late fee. One flat fee may make more sense to you than a percentage. You just need to make sure the fee is still a reasonable amount. For example, you can set a late fee of $50 to cover the entire period that payment is late.
- Daily flat fee. You can choose to charge a smaller fee for every day that a payment is late. This can be used instead of a flat fee or in addition to it. This can exist as a set dollar amount or as a percentage of the rent.
You must make sure to set a limit on the total amount a tenant can accumulate in late fees. This limit should be based on your personal preferences and state regulations. This will help make it clear to your tenant when you will no longer tolerate late payments. It also may signify when you will begin asking the tenant to leave or initiating the eviction process.
Should You Ever Waive Late Fees?
Even if you have a reliable tenant who slipped up once, it’s not recommended that you ever waive late fees. An overdue payment is a breach of your lease contract, and charging a late fee is the consequence for that breach according to the contract. .
Waiving a late fee once can be a slippery slope. If you waive a late fee for one tenant, it would only be fair to waive late fees for every other tenant. And if you don’t, it’ll look like you’re playing favorites. Furthermore, if you waive a late fee once, the tenant may get comfortable with not paying on time and you don’t want to set that precedent.
Even if every tenant isn’t out to take advantage of you, it’s better to play it safe and resist waiving late fees.
Conclusion
While late fees are an unpleasant part of property management, it’s important to know how to properly collect and structure them in today’s landscape in order to run the smoothest operation possible. As part of that changing landscape, property management software makes this process easier than ever and alleviates the burden of chasing tenants for late fees.
