Late Rent and Fees: The Essentials

As a property owner, property manager, or employee in the residential property rental industry, you want to have renters that consistently pay their rent on time. It is a dream to have amazing tenants who are responsible for paying their rent on time and don't cause you any trouble with the rental collection. However, since each renter has a unique life and circumstances, it is typical to have tenants who pay rent late or only pay a portion of the whole amount due. According to Multifamily Dive, 15 percent of renters, or 8.4 million Americans, are behind on rent payments.

You may need to charge late fees to your tenants. Charging renters a late fee could be an effective motivator for paying rent on time. This article will provide you with an essential introduction regarding late rent and assessing late fees to help you manage your residential property rental business in a way that works for you.

What Is a Rent Late Fee?

In the most basic terms, a rent late fee is what property owners or property managers charge tenants who pay their rent late or only make partial rent payments. Rent late fees may be used to compensate the property owner for the inconvenience brought on by tenants who pay their rent past the due date. This includes financial inconvenience because of the delayed payment or the additional time and effort required for collecting rent. Importantly, late rent fees can deter tenants from paying their rent late.

Is It Legal To Impose Late Fees on Tenants?

Late rent fees are considered legal additional charges as long as they are specified in the rental contract with the tenants signed. The standard recommendation for landlords, property owners, and managers is to include the late fee amount and the due date in the lease. You can set proper expectations for the renters before they agree to sign the lease.

How Is a Rent Late Fee Assessed?

It is common for landlords to charge a late rent fee if the renter does not pay their rent on time — usually after a grace period of between three and five days. According to Rent Law, the standard late rent fee is five percent of the rent; the courts consider a reasonable late rent fee to be five percent of the total rent or less than five percent and in a fixed dollar amount.

For example, you can charge a fixed amount of 60 dollars as a late rent fee to your tenants no matter how many days they are late in paying their rent. However, it is, as mentioned, important to have the amount or the calculation of the late fee specified in the contract to avoid any confusion or conflicts.

Is There a Limit on a Late Fee?

According to Nolo, “Most states have specific laws covering various aspects of rent. These rules may cover when rent is due (including what happens if the rent due date falls on a weekend date or holiday); where rent is due; whether or not tenants have a grace period; and late fees.”

In other words, state or local regulations have a unique set of rules about rent, including the control of late rent fees. For example, in California, late rent fees must represent the assessed losses incurred by the property owner rather than a percentage of the total rent or a fixed amount; that includes the financial difficulties that occurred due to the late payment of tenants or additional time, effort, and investment to collect the payment.

However, certain areas don’t have rules governing late rent fees. For example, in Florida, as long as the late rent fee is specified in the contract, you have the freedom to determine how much the fee is and when it needs to be paid. However, it's still preferable to impose a fair and acceptable late rent fee; demanding an extremely high late charge could be perceived as unjust and lead to complications. Plus, that can further put the renters in a position where they struggle even more to make the required rent payment.

Limitations and rules about setting a late rent fee largely depend on what state you are in. You can also check the Maximum Late Fees by State to ensure you comply with all local laws.

How To Collect Late Fees

Normally, tenants should immediately understand that they need to pay the late fee. However, some tenants may choose to ignore the late fees and only pay the rent amount.

As a property owner or manager, you must collect the late fees as it is an important compensation for the inconvenience caused by the late payment of rent. Here are several ways to collect late fees.

Professionally Communicate With Your Tenants

Communication is essential for a healthy relationship. You can reach out to your tenants through call, text, or email for a courtesy reminder and properly discuss the late fee(s). Maintaining good relations and a constructive tone with your renter is crucial; it will help you have a good conversation with your tenants and understand more about the reasons why they are late in paying and why they did not pay the late fee.

After all, you never know — with adequate communication — you could find out that the reason is simple and completely avoidable in the future.

Add an Allocation of Payments Clause That Addresses Late Fees

When collecting payment, it's a good idea to include a clause regarding allocating payments that addresses late fees. This condition tells renters that any money they pay for rent the next month will be used to cover any outstanding costs, such as late fees from the previous month. This will make them feel compelled to pay the late fee rather than disregard it.

Use Your Renter’s Security Deposit To Cover the Late Fee

Utilizing the tenant's security deposit to pay the late fee might be your final resort if they are giving you extra trouble collecting late fees. That can be a surefire way to collect late fees, but your renter will probably object. As a result, you should provide them with a good, documented explanation of why you had to deduct money from their security deposit.

Utilize a Reliable Property Management Software

ExactEstate is top-of-the-line property management software that offers solutions to complex property management problems such as collecting late payments and late fees. ExactEstate offers automatic rent collection that includes a schedule and automates recurring rent, add-ons, and associated fee postings, including late fees.

With ExactEstate, you won't need to stress about reaching out and following up with your tenants all the time to collect their rent payments and late fees. ExactEstate is your one-stop shop for property management, especially collecting payments.

Schedule a demo today and learn more about how this top-ranked property management software can help you achieve greater success in your residential rental property business.