Late Fee "grace period." Why?

Question

Most leases I've seen have a "grace period," rent is due on the first, but a late fee is not assessed until the 3rd or the 5th. We've had this in our leases and it has not served us well, and to be honest, we have included it because it seems to be an industry standard, though I don't have a clue how it benefits the landlord. Anyone have a good reason for why you should offer a grace period? Why shouldn't rent be due the 1st, and a late fee assessed at midnight?

Anyone have a late fee structure that has worked well for them and does not include a grace period? Anyone successfully use a progressive late fee that grows daily up to the point that notice is served? Has that worked?

Account Closed · Answer

Even though you may have rent is due on the 1st of the month in a Lease Agreement, some how, tenants, even customers, believe they have a grace period, which to them means that rent is not due actually on the 1st, but on the date you charge that  late fee.

My lease agreement states the facts and nothing but the facts, and I never use the word "Grace Period" in any of my contracts.  This is what I say.

Rent is due on the 1st of every month.  If rent isn't in my office on or before  the 1st of the month then you will be sent a Notice to Quit for non payment of rent.

If rent is not received in my office on the 5th of the month then you will be billed a late fee of $25.00.

THE ANSWER TO CORBY'S QUESTION

Rent is due on the first of every month, and if not received in my office on or before the 1st of the month then I send out that NOTICE TO QUIT for non payment rent.  You see, you can't even file for an eviction until that Notice to Quit is sent.

By sending that Notice to Quit I have protected myself, plus if rent isn't received in my office on or before the 5th then I've accumulated more money, a late fee of $25.00, yet the Eviction process is still going on.  I haven't lost time.  This is why you never wait until you have to charge anyone a late fee to file that Notice to Quit.  You always file it the day after the rent was due in your office.

Then if rent isn't received in my office on or before the legal day requirements of filing that Notice to Quit in a court of law, then I can file that Notice to Quit right away, after the time has elapsed for them to have responded to that Notice to Quit.  I haven't lost time.  Because  TIME IS OF THE ESSENCE  !!!

If you actually call something a GRACE PERIOD, then the courts can construe this to mean that the tenant has until the 5th (I'm using that as an example) to pay their rent and give them a leeway to have the Judge say to you, well you've allowed them to pay rent on the 5th all these months so you have changed the contracts due date.

I never give the Judge or the Tenants a "Loop Hole" to where a Judge can use his or her opinion to award the tenant(s) for bad behavior.

So the major difference, is that no matter what, you send that NOTICE TO QUIT, the very first day rent is late.  (And still charge a late fee....but never call it a grace period.  Whenever a tenant would say grace period to me, I corrected them immediately)

So you have to be very careful in the wording of your Application Forms, and Lease Agreements, and even verbal agreements.

(P.S.  Corey)  Your little baby in your picture looks like a real cutie pie.  Okay that's the soft side of me.  Now...back to business)

Nancy Neville

David Dachtera · Answer

Why a grace period?

Because life happens.

Some people like to start OD'ing on Maalox and mailing nasty letters, etc. on the 2nd when the rent is due on the 1st. So be it.

Landlords don't get to dictate paydays any more than tenants can predict unexpected expenses.

REI is a people business - a business, yes, but still a people business. Buildings and dollars don't rent apartments, houses, etc. People do.

Stuff happens with people. Fact of life.

Typically, the mortgage payment is due on the 1st, but late after the 15th, depending on the lender and the terms of the loan. If you can't cover late rents, heaven help you if you have a vacancy or major property-related expense (fire, storm / flood damage, etc.).

David S. · Answer

For me, rent is due on the 1st and late on the 2nd, unless the 1st is a weekend or holiday.  In that case, it is due the next business day.  Keep in mind that my state laws support this.

I tried the grace period before and tenants waited until that day to pay.  Some even pushed a few days after that.  That is totally unacceptable.

I did do a per day charge on late fees before, but am now converting to a fixed amount.  The per day did not work out too well and it was an accounting nightmare. I do think that the per day late fee may violate state usury laws (depending on the state) if set too high.

Mike S. · Answer

Grace periods allow for the honest "I forgot" for a good tenant. My decision to offer a grace period is based on the tenant pool that a particular rental will attract.  I have also offered $10 discount if the rent is received on or before 10 days before the due date and that works well for some.

I collect rent electronically, so I know that if the rent payment isn't initiated by a certain day, it will be late.  On that day, I send a friendly reminder of the need for payment to begin and a reminder of the consequences.   This works well for me and conditions the tenant to prompt payment.  I've never had to charge a late fee.

Jeff Rabinowitz · Answer

My leases add $10 per day until the rent is paid. The tenants who pay online always pay it. It is harder to enforce on those who pay by check but I am usually successful at collecting late fees. When I have asked for this fee in court, one judge (~5 years ago) capped the fee at $100. (The rent for that house was ~$1,000/month.)

Corby Goade · Answer

Thanks to all for your two cents- sounds like this has been a common struggle for many landlords- some really good advice here. Account Closed, thank you for your especially detailed response as well as the compliment on how cute my son is- you're right! Luckily he got his mom's good genes!

Thomas S. · Answer

As previously stated grace period and late payment are two entirely separate issues. IF your state codes do not require you to provide a grace period before the late fee takes effect you should not have a grace period. "Opps" I forgot is no different than any other excuse. Rent is due on the first, late on the second, excuses do not change that fact.

Notice to pay or quit should always be issued on the second regardless of late fees. When they give there excuse for why they did not pay on time the landlord gives their excuse for why a pay or quit is issued.

Walt Dockery · Answer

Every mortgage I've ever had has had some form of grace period before a late fee or penalty.

Kathleen Leary · Answer

Rent is due the 1st. If that day falls on a holiday or Sunday, rent is due the next business day. PERIOD.

Late fees accrue the first day rent is late. After three days, you get a "Pay or Quit." (Your state may have different time periods, etc. Check first!)

To halt the eviction, all rent plus accumulated late fees must be paid to date. No partial payments accepted.

I go over this in detail before the papers are signed; if the tenant feels they aren't able to meet this requirement, they might find a different property more suited to their situation.

When MY mortgage holder decides I can make late or no payments, maybe I'll re-visit the tenant's payment schedule.

Late Fee "grace period." Why?

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