I'm in a somewhat similar position. I have tenants that are WAY under market. They take wonderful care of the property and perform all general maintenance. I inherited them when I purchased the property in January.  They've been in the house for three years, and they rented their previous home for 25 years. 

Their payments come in just after the first of the month. I've explained the terms of the least and my expectations of payment, yet they're still a bit cavalier in their payments. 

They're TAW, and I've decided to move on from them and issue a notice to quit. While I understand the value of long term tenants and prideful renters, I don't run a charity. My mortgage is expected to be paid on time, so I expect my rent to be paid on time. 

It sounds like your situation is not going to get any better due to the medical condition you describe. I would suggest moving on from them. 

The fact is a tenant that pays late is not a good tenant they are bad tenants. I can not believe they are not being forced to pay late fees. Talk about adding insult to injury. 

Sorry to say but a landlord that turns a blind eye to this behaviour is a bad business owner.

I am not most landlords but you are right I say kick their thieving asses to the curb.

You might think about firing your PM while you are at it too.

Your tenants are steeling $300 every month from you and you believe it is OK because they give it back to you after 20 days without paying a cent in interest. Those are some really good tenants you have there. 

Can't wait to see what they do to finally force you to evict them.

@Brandon Bozarth How much are the late fees that they are not paying?  I would probably keep them as long as I was getting my rent because I have bigger things to worry about, but I would enforce the late fee.  The late fees in NC can't exceed 5% of the rent, so those fees would only be $60 in this case. I don't think that's unreasonable to have the tenants pay.

I would have the PM have a talk with them.  I would give them the chance to start paying the fee and to set a clear expectation with them.  If they still can't follow it, they will need to go.

I have had long term tenants that pay late often. They do pay the late fees (my lease specifies $10/day). They pay through an online service. I would probably cap the late fees at $100 but they have not asked me to and I will not volunteer to. It is more work when they pay late. I usually prepare and mail a notice to quit when they do so that I can proceed to court if the payment does not arrive. This has been going on for 6 years. I tolerate it because I am paid to. The first time they missed a late fee would be their last. 

@Tommy Townsend I really like your advice of finding out if there situation is long term, and if they actually care. Thanks for the advice.

@Dawn Brenengen The late fee is $30 and $10 a day.

Seems like a consensious that I need to make them pay the late fee or they need to go. You are right @Thomas S. I am not running a good business by not enforcing the late fee and they are stealing from me. I will have my PM talk with them and give them the option to pay up current with late fees or serve them with a 5 day.

Really appreciate all the advice everyone.

Congrats, you will feel a lot better about yourself and your business once you whip them into shape.

And next time you will jump on it immediately simply as a routine part of operating your business. The job is so much easier when you set your rules and insist they be followed. Once you have a policy in place and treat every tenant exactly the same regardless of their personal situation you never have to think about what you should do . It becomes automatic.

You may want to consider a flat late fee. To me, late is late, and there is no need to nickel and dime them $10 a day.  A flat $50 late fee gets there attention when I give them a 5 day grace period.  Its simple and you never have to figure out how much they owe this time they are late.   Make sure you send them a Late Notice Letter to comply or evit.  I finally did this last month and it work like a charm to get them to pay on time.  They now have erentpayment.com set up.

It might be that with their temporary medical issues, they don't have access to all funds on the 1st right now.  Can you work out a bi-monthly payment, 1st and 20th, for instance, instead of just the 1st, without causing an accounting problem with your PM?  If they can routinely pay $900 on the 1st and $300 on the 20th, then it might help if you set it up that way for, say, a 3-month term with no late fee and see if it works out.  But let them know if they do not pay timely, you will start eviction on the first day they haven't paid it all by the 20th.   

I had a long-term tenant that told me last fall up front they were both switching employment and would pay late for 2 months in a row until they could catch up, but that after that, they would have no problems as both jobs were higher pay.  I worked it out with the PM that they wouldn't pay any late fee for those 2 months as long each month was paid in full by the end of that month.  It worked, and they have been back to their timely payments ever since.    But they were proactive in asking before it occurred.  

It seems like, if they are paying partial rents on a fairly consistent basis (the 1st and the 20th) that maybe you could make this work somehow for you.  Perhaps suggesting a "bi-monthly" payment plan for an extra fee?  If their rent is $1200/mo and IF you were enforcing your late policy, as of the 20th they would owe you an extra $230.  Strike a deal with them if they truly are paying off medical bills and they are truly good tenants otherwise.  Perhaps approaching them with an offer to take bi-monthly payments at, let's say $650, would work for everyone.  Their option is to say yes or to start paying the late fees which is going to cost them a lot more than an extra hundred a month.  You win because you at least start collecting something and you look like a nice guy and they win because for now, they're no longer "late" and owe the late fees.

Edited to correct my math and to say it looks like the previous poster just beat me to my idea!

I like @Susan M.'s response; yes, you are a business owner and you need to make sure that you are making good business decisions, but you are also a human being, and kicking out otherwise good tenants while they're already struggling with a tragedy is unkind. 

Susan's suggestion allows for a compromise agreement that still makes good business sense. We are in a human business, and sometimes it takes more than just rigid rules and numbers to run the best business.

Good luck.

Hobby landlords have the option to treat their tenants any way they choose in regards to enforcing their policies. It is simple as the money is less important on a monthly bases and the operation of the business not professionally run. Accounting is generally loosely done with pen and paper and seldom accurate. $50 dollars here or there is rarely important. They are also the landlords that end up having tenants owing 2,3,6 months back rent before they start the eviction process. 

Professional landlords are not in business to cater to individual tenants issues. If they did it would be an accounting nightmare.

Imaging operating a grocery store and having each customer decide how much they want to pay when they get to the register or maybe decide they will just take the food and pay later.

So these replies seem to be a little severe. Structure your problem and go about it this way. Your two lenses are the properties finances and the tenant issue

1) Finances

• What is the cost of the eviction process in your state? Factor in time, attorney's fees, possible damage to the property
• What is the cost of finding a new tenant? Your current tenants want to stay a long time, what is the effect on your cashflow if your average tenancy is 2 years? 1 year? You will likely have to clean/ update the property etc.
• How has the rent changed since these tenants have moved in, perhaps you can evict them and raise rates to recoup some of these expensess
• What has your maintenance costs been with them vs How might it evolve with new tenants

2) Tenant

• As others have said are the medical problems temporary? Are they severe?
• I think you could also check their credit history and see if this issue is compounding elsewhere in their finances.
• How do they pay currently? Perhaps offer to knock a few dollars off their rent if they set up electronic funds transfer or something every month to guarantee you get paid.
• Late fees: unfortunate they don't pay, but understandable if they are truly in a bind. Consider waiving the old fees and as others have said adopt a much higher fixed fee going forward to function as a strong deterrent, ensure the PM company enforces this and communicates it clearly to the tenant.
• Consider changing payment terms to weekly, bi-weekly etc to better match their cashflow, if you think it is beneficial to keep them and they are consistently late by the same interval
• Consider your goals, landlords are in it to make money, but do not have to stomp out every puppy they see either, if someone is terminally ill or something, this is exactly how you ruin your brand/reputation.

If the property still has positive cashflow and the cost of turnover is high, you should probably at least try to exercise the flexibility you have as an investor to keep tenants going through dire straits a chance to get steady again. You cannot buy the type of goodwill that would be built from that type of relationship. That being said, do not let yourself get taken for a ride.

The only thing I can add to this is, there is a lack of grace in the world.  Instead of kicking people out on a whim, try to understand where they are coming from.  This particular situation, it sounds like the tenants have been up front about their difficulties and are honest about their situation.  There are multiple ways it can turn out but how about two very different hypothetical scenarios:

1) You kick them out, they have a hard time getting established elsewhere, you have a hard time back filling with someone equally as good of a resident (taking care of the place, paying rent, etc.).  You go through 3 more tenants who are awful to the place and are difficult to work with before finally finding someone else you call a good resident.

2) You find out their medical deal is temporary and they expect to get back on track in 2 months when one of them returns to work (I'm making this part up).  You have them pay the late fees and you set that as a deadline.  They start paying on time again and are all caught up - what if after that they rent for 10 more years with no more problems?  You would have made a move for nothing and possibly caused yourself more problems.

Before I'm labeled as a newbie, I am a professional property manager.  I've heard every excuse (just about) and I've seen every scenario.  I work for a large company and while we do not have a lot of flexibility for waiving late fees we do have the option to have some grace, try to figure out what someone's situation is, if it's likely to resolve itself, and if there is anything more we can do to help them be good tenants.  Those of us in the rental business provide homes, no one said we couldn't be human about it and not make it 100% money focused.

personally, yes this is a business, but i also have to sleep with myself at night. if it was someone who NEVER paid on time and was a constant problem, or didn't take care of my property, i would have no issue with starting the eviction process. But like you said, they have been good tenants and have severe medical issues that have come up, but still pay you your money albeit slightly late. I would work something out with them and not be quick to think "i need to throw this family on the street over a few cents" when we've had a good working relationship.

maybe it's cause i haven't been burned by a tenant yet and once i do i'll become more cold, but i wouldn't want anything like this on my mind if they were willing to work with me through their hard times even though I know i'm running a business and not a charity.

The responsibility falls on the tenant when they have issues to contact their landlord and inform him of the situation and ask to work things out. A landlord is not a social worker and is only in business to make money. All you that are saying go talk to your tenant should be saying why in H*ll has the tenant not been forthcoming with their landlord.

The tenants in question may have problems but clearly they have not extended themselves and have simply taken it upon themselves to do as they please. I did not read anywhere that the landlord has been approach or given permission to them to pay late. In addition he has clearly stated they are refusing to pay the late fee. That is a deal breaker. No tenant gets away with refusing to pay monies owed. They are very upfront about that point. By not paying they are saying S***W YOU Mr. landlord my problems are more important than yours.

The rest of you are missing the point in this situation, it is not that the tenant is having trouble it is the fact that they are doing nothing to ask permission or paying the fee to compensate the landlord. Your advice is you do this, you do that why is it the landlords responsibility to chase down a tenant and resolve their personal life problems.

I see no reason to show any compassion to any tenant that clearly could care less about their relationship with their landlord.

Now if after I serve the eviction notice they come to me begging for forgiveness, hand me all the money they owe and promises they will be back on track by a certain time and will pay all their fees in the interim then I would consider letting them stay. But I would not be happy with their past behaviour.

I like what @Lynn M. and @Susan M. suggested. Work with a good tenant. I have a tenant who gets paid on the 5th and 20th of the month. They take good care of the place. I just modify the lease to start on the 5th, rent is due on the 5th and late after that, late fees apply from the 10th.

@Brandon Bozarth If I was in the situation, I'd be empathetic/sympathetic.I'm a human first. We've all experience hard times. However, I'd sit down with the tenant and come to an agreed deadline where I'd accept the late payments and waived the late fees. 

We all don't want turnover and as long as this tenant is making an effort to pay their rent and keep your property clean, then something can be worked out just make sure you're covered. You don't want this tenant to make this a habit. Best of luck!

Yikes. I don't seem to agree often with Greg, but in this case I have to agree with him. Either you have a business, or you don't. It doesn't need to be acrimonious, or vengeful, but the fact that they have taken it upon themselves to pay 75% at the beginning of the month, the remainder 20 days in, and feel that they are absolved of the late fee is not the hallmark of a good tenant. 

To me a good tenant needs the following:

1. Pays in full, on time, all the time.

2. Keeps the property in good condition.

3. Communicates with me on issues, problems, concerns as needed. 

4. Respects the neighbors and neighborhood.

Your tenants are missing 2 of these 4 points. If it were me, I *might* waive the late fee, but it would be my prerogative, not theirs. What if you have a $1000 mortgage/tax/insurance bill due on the first of every month? Who should carry the late fee because you're waiting 3 weeks for the remainder of their money? 

Your PM company sounds weak-kneed. They should have been the ones discussing the issue with the tenant and yourself to see if you would be willing to accept this (temporary) situation. 

One thing I didn't see, or might have missed, was how long they have been tenants. If they have been with you for 10 years, and have a personal relationship with you (not advisable, but anyway), that is a different scenario than someone that moved in the first of the year.