Increasing late fee to motivate rent being paid on time

Investor · Walla Walla, WA · Member since 2016 · 50 posts · 19 votes

Hi all! Thanks in advance for your help! I have a tenant that is consistently late with rent. It started with a day or 2, then 5, 10 and now we are at 27 days. My rental agreement states that rent is due on the first and late on the 10th its the 27 today and I haven't seen rent. This has been the recent trend for the past 5 months. They get in it before the next month is due but not by much. They are good people and have taken decent care of the place. The rent is $1200. My current late fee is $50. I think if the late fee was higher they might make paying rent on time a higher priority. We are out of contract and have been for a couple years now. Any or all feedback is appreciated. Please take it easy on the new guy. Thank you again!

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Patti RobertsonBusiness Member

Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes

My rent is due on the 1st, late on the 2nd. VA doesn't require a grace period, so we don't offer one. My lease calls for a late fee of 10% + $10/day to encourage tenants to pay as quickly as possible. If we go to court though, Judges often time reduce our late fees to 10%. Not always, but sometimes. Rather than offer what sounds like a punishment of a late fee, have you considered offering to let the tenants pay rent on their payday? Let's say their rent is $1000/month. If they get paid bi-weekly, offer to let them pay $500 every payday. Explain that they will pay a little more over the course of the year, but if they budget by paycheck this can help them avoid late fees. Instead of getting 12 payments of $1000 - $12,000, you will get 26 payments of $500 = $13,000. You still charge a late fee, but convert it to bi-weekly. Some months when they get 3 paychecks, they will also make 3 rent payments. This tends to be a win/win for both parties.

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Patti RobertsonBusiness Member
Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
9y
My rent is due on the 1st, late on the 2nd. VA doesn't require a grace period, so we don't offer one. My lease calls for a late fee of 10% + $10/day to encourage tenants to pay as quickly as possible. If we go to court though, Judges often time reduce our late fees to 10%. Not always, but sometimes. Rather than offer what sounds like a punishment of a late fee, have you considered offering to let the tenants pay rent on their payday? Let's say their rent is $1000/month. If they get paid bi-weekly, offer to let them pay $500 every payday. Explain that they will pay a little more over the course of the year, but if they budget by paycheck this can help them avoid late fees. Instead of getting 12 payments of $1000 - $12,000, you will get 26 payments of $500 = $13,000. You still charge a late fee, but convert it to bi-weekly. Some months when they get 3 paychecks, they will also make 3 rent payments. This tends to be a win/win for both parties.
757-472-2547
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Jim Shepard
Investor · Edwardsville, IL · Member since 2015 · 432 posts · 481 votes
9y
Randy Hallowell I think it is past time to get tough on this habitually late tenant. I had a similar situation a few years back with a tenant. About 6 months into the 12 month lease she started running late. I worked with her for 4 or 5 months and then sent her a letter telling her no more. If she was late one more time I would be sending her a 5 day notice to quit. She got the message. I don't think increasing the late fee amount is going to help. You need to be the squeaky wheel that gets paid! Also check your state laws in regards to the amount of late fees you can charge the tenant.
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Randy Hallowell
OP
Investor · Walla Walla, WA · Member since 2016 · 50 posts · 19 votes
9y
@Jim Shepard Thank you! I like that idea and I certainly will check on the state laws.
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Rob Gillespie
Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes
9y
Hi Patti,
I am not sure how it is where you operate, but in the Cleveland market when you accept rent late, the judge will look at it as making the due date later than it states in the lease. So if you say it is due on the first, but you accept it on the 10th, and they do not pay until the 9th next month, you may have a tough time getting an eviction.
So now the solution. I would not increase the late fee, but I would give them a letter that states the correct due date and explain in the letter that you can and will not accept rent past the 5th. In the event it is past the 5th, there will be an eviction notice and there is no turning back.
I found setting boundaries will move you to the top of the list for people to pay. My guess is they only pay late because there is not a REAL consequence for being late, and In my opinion a larger late fee will not scare them into paying faster. Just my 2 cents. :-)
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Levi T.Pro Member
Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
9y
Originally posted by @Randy Hallowell:

Hi all! Thanks in advance for your help! I have a tenant that is consistently late with rent. It started with a day or 2, then 5, 10 and now we are at 27 days. My rental agreement states that rent is due on the first and late on the 10th its the 27 today and I haven't seen rent. This has been the recent trend for the past 5 months. They get in it before the next month is due but not by much. They are good people and have taken decent care of the place. The rent is $1200. My current late fee is $50. I think if the late fee was higher they might make paying rent on time a higher priority. We are out of contract and have been for a couple years now. Any or all feedback is appreciated. Please take it easy on the new guy. Thank you again!
Your tenants are underwater by one month, if they could they would cycle the cash that fast, but they can't. You have a choice, evict or keep the course.
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Randy Hallowell
OP
Investor · Walla Walla, WA · Member since 2016 · 50 posts · 19 votes
9y
@Patti Robertson Thank you Patti! I did attempt to move when they paid rent in alignment with their payday, but they weren't interested.
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Randy Hallowell
OP
Investor · Walla Walla, WA · Member since 2016 · 50 posts · 19 votes
9y
@Rob Gillespie I'll work on those boundaries! Once established I'm sure that will help with my future landlord endeavors. Thank you!
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Malcolm Boston
Titusville, FL · Member since 2016 · 55 posts · 40 votes
9y
Some landlords will work with tenants on issues like these. I recommend you not be one of them. The rent is due per the lease they signed. If they won't pay on time you aren't running a business, you are running a nonprofit. Save your philanthropy for charities you like. I would terminate their lease ASAP to find better tenants. I would also do some introspection to better understand why you are willing to operate outside your lease when that is the document that protects you as the landlord. A certain amount of grace is never negative but you have described a scenario where it has long been exhausted. Perhaps you are afraid of losing a "good" tenant? Maybe you can do some upgrades to improve your tenant quality? A tenant who doesn't pay for the roof over their head on time is a twitch away from a tenant who doesn't pay. I would rather the unit sit empty that have a flaky tenant.
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Patti RobertsonBusiness Member
Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
9y
@Rob Gillespie - The concept of a bi-weekly lease is not that rent is due on the first, but you allow payments to be made later. It's a bi-weekly lease, with rent due in 26 payments, instead of 12. It's still late the first date after the due date. The due date is just every other Friday, etc, rather than the first of the month.
757-472-2547
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
9y
Late fees are useless and I will venture to guess this month you will not receive the rent before January is due.
What you should have done sooner is inforce your lease. They should have received a pay or quit notice long ago. Had you done that in the beginning the eviction and loss of rent you are now potentially facing would have been avoided.
Do not give them another inch. evict now, hopefully you will only lose a month or two of rent, if you do not move immediately it will get worse.
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Randy Hallowell
OP
Investor · Walla Walla, WA · Member since 2016 · 50 posts · 19 votes
9y
Greg S. I am learning so much here on BP. It's so nice to have you all as resources. I have a lot of changes to make. Thank you for your insights!
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Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
9y
This tenant will not be fixed by increasing fees, they are dead beat losers, kick them out now.
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Jacob Pereira
Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
9y
I know BP is very pro-evict, but we don't have your whole story. First off, I agree 100% that you need to re-write your rental agreement as soon as their lease is up or you end it early. If I understand it correctly, your current agreement actually encourages tenants to be late until the tenth or to wait the full month once they are late because there is no additional penalty afterwards. My lease says due on the first, late on the fifth, then a $35 initial late fee +$5 for each additional day it's late. That way each additional day they're late costs them extra money, unlike on their other bills, thus putting me in the front of the queue. Unfortunately it's very rare that people are late on the rent, but when they are, it's actually a windfall for me.
As far as the eviction goes, certainly start the procedures, but let them know what's up. Here's how I handle late payments: I call the person on the day after rent is due and just mention that I haven't received it. Then, I ask them to send it in immediately, but I also tell them that it's standard procedure for us (us is me, but I feel like it sounds less like I'm some one-man yahoo if I posture like I'm an organization) to post a three day notice to quit on their door (this is the first step for an eviction in my state; I don't know what yours requires). I tell them, "don't worry, I know you're good for it, it's just SOP. As soon as we receive the money you can disregard." Then I tell them that the step after the three day notice is to file eviction paperwork, but it's all just a precaution, so if they do default you don't have to wait all the extra time. Usually after that's been explained, they say they just need to get their paycheck on Friday or whatever and I don't bother with the eviction paperwork (I do still post the three-day notice, though).
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Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
9y
@Randy Hallowell , your profile says Walla Walla, WA. If your rental is also located in Washington, you're in luck because Brandon Turner is located in Washington, and he knows just about everything.
He wrote a post called How to Evict a Tenant , and cited Washington law in the post.
I wouldn't say BP is pro-eviction so much as we are pro-rental-is-a-business. I would certainly not renew this lease, and make sure you give the tenant proper notice that the lease is not being renewed. I'd start the eviction process immediately because they have not contacted you with a date they will pay rent, and this is a pattern.
I would also amend your lease to say rent is due on the first and late on the second. If your state has a mandatory grace period, that doesn't mean it isn't late, it just means you can't collect a late fee until the end of the grace period.
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Randy Hallowell
OP
Investor · Walla Walla, WA · Member since 2016 · 50 posts · 19 votes
9y
Mindy Jensen Thank you!
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