Tenant Ignoring Late Fee Notices & Refusing to Pay

Tenant Ignoring Late Fee Notices & Refusing to Pay

Sunnyvale, CA · Member since 2017 · 4 posts · 0 votes

Hello all,

I am currently in a situation where one of our retail property tenants is refusing to acknowledge and pay late fees as stated in the lease. This property is a family property and until recently it was managed by my elderly uncle.  As such, the tenants would regularly take advantage of his kindness and consistently pay late/ take actions that are not in accordance with the lease. 
 

The following is the issue and any/all suggestions will be greatly appreciated:

-Rent is due on the 1st of the month and there is a grace period until the 3rd.

-After the grace period has passed, in the lease it states that there will be a $25 late fee for the following 3 days and a $10 fee per day for each additional day. (When the lease was drawn up, I made sure that the late fee was reasonable as it is not for us to make additional money, just used as a tool to make sure that the rent is paid on time)

-The "Late Fee" section is listed under "RENT" in the lease.  That said, is this considered additional rent? (I ask as if it is, I assume I am able to serve a 3 day notice)

Additional Information

-Tenant is late in paying the rent on time 10 months out of the year

-I have sent out several notices to the tenant with tracking, to have proof that they received the letters.

-Tenant recently painted the exterior of the building without any consent from us.

Any suggestions on how I should proceed and what to do?  Thank you in advance.

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Real Estate Broker · Kansas City, MO · Member since 2016 · 36 posts · 38 votes
9y

Hi Sean,

So this is a topic I've discussed with potential Clients many times when they approach me with similar issues.... why would you feel the need to evict this individual? Better yet, why do you feel powerless against this individual? There's no need to resort to such hasty solutions as eviction. From the sound of things (managed until recently by uncle/10 times late in the past year), this is a long term tenant? I.E. - a tenant who is currently on a monthly lease?

Simply serve them with a Notice of Continued Lease Violation, and as a result of this Continued Violation - a 30-day Notice to Vacate the Premises. #1: There's no reason for you to stress yourself out as Owner/Manager about a tenant who refuses to follow your procedures, when you can simply replace this individual with a better-quality tenant. #2: (This is the kicker)... You'd be surprised at the number of tenants who immediately "play ball" when faced with their walking papers.

A legal Eviction is something that costs time & money (and often requires an Attorney if you're Owning/Managing under an LLC). But a 30-day Notice to Vacate is just that - an amicable termination of the Lease Agreement. If at the end of that 30 days, the tenant refuses to vacate - most states allow you to seek twice the monthly rent in legal damages (more than you could get under a normal eviction).

The point being - make this tenant aware that there's a "new Sheriff" in town. Not a mean or nasty Sheriff by any means... simply one that expects all parties to honor the obligations they agreed to upon signing the Lease Agreement (grown-ups who sign Contracts have to honor Contracts like grown-ups). If he/she refuses to work within the boundaries of the Lease Agreement - there's no reason to continue the relationship. The same holds true with the painting of the exterior - this is your property, not theirs. It's not difficult to remind them of this so long as you remember that the law - when used appropriately - is on your side (the law which allows you to tell them: "thank you for your time as tenant... best of luck to you in the future.")

The next time you communicate with this individual be friendly, be courteous - but by all means... be the Owner.

Cheers.

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    9y

    As long as you have been operating within the statutes of the local landlord/tenant law and the terms of your contract (the lease), then it sounds like it is time to serve notice and begin the eviction process.

    However, you might try a knock on the door first and see if a calm tête-à-tête might resolve things.

  • Sunnyvale, CA · Member since 2017 · 4 posts · 0 votes
    9y

    Roy,

    Thanks for your input.  I have spoken with the tenant on the phone and in person, to no avail.

  • Real Estate Agent · Lexington, KY · Member since 2017 · 68 posts · 44 votes
    9y

    I would be hesitant to try to evict based on the unpaid late fees alone, at least not without talking to a lawyer.

    It is possible that if your uncle repeatedly let late fees slide, that he (and as a result, now you) have effectively waived your right to collect those.  Same thing about being strict with rent being due on 1st.  An attorney should be able to tell you.

    Painting the exterior is likely another matter altogether.  Check your lease, but I'd imagine there are restriction against that in it.  You may be able to evict on that basis.

    HOWEVER: from what you've mentioned, you may want to consider carefully whether evicting is really what you want to do.

    It sounds like these tenants are paying their rent each month, just not on the 1st of the month.  Are they taking good care of the property?  (Forget the painting - as long as they did an OK job, if you really hate the color they chose you can likely deduct from the security deposit the amount needed to change it back.)

    If they are paying their rent and keeping up the property, is it really worth the expense and lost rent to evict them?  Sounds like things are going reasonably well...  Is it causing you cash flow issues if they keep paying mid-month instead of the 1st?

  • Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    I would send a statement out with balance owed, the current balance on their account. If not paid in 3 days give another pay or quit. 

    In accounting the money given is applied toward the previous months balance.. so if they had a previous balance due of accrued late fees of like 150.00 then the money they would pay for next month's rent would show as a shortage on the account ... make sense ?

    So then you send a current statement out for them to pay the balance before the 1st of May. Get them current of the account from the date you have records or starting from the 1st of the year. 

    March 1 rent 500,00

    March 5, late fee 25.00

    March 6, Payment of 500 check # 123

    March 6 Balance due $25.00  

    April 1 rent 500.00 + balance forward from March total due 525.00

    April 6, late fee  25.00

    April 6 Payment rec 500.00 check 124 = balance due $50.00

    Painting the house well it's done now,, you could get an estimate for repainting and charge them back for damaging the home.

  • Real Estate Broker · Kansas City, MO · Member since 2016 · 36 posts · 38 votes
    9y

    Hi Sean,

    So this is a topic I've discussed with potential Clients many times when they approach me with similar issues.... why would you feel the need to evict this individual? Better yet, why do you feel powerless against this individual? There's no need to resort to such hasty solutions as eviction. From the sound of things (managed until recently by uncle/10 times late in the past year), this is a long term tenant? I.E. - a tenant who is currently on a monthly lease?

    Simply serve them with a Notice of Continued Lease Violation, and as a result of this Continued Violation - a 30-day Notice to Vacate the Premises. #1: There's no reason for you to stress yourself out as Owner/Manager about a tenant who refuses to follow your procedures, when you can simply replace this individual with a better-quality tenant. #2: (This is the kicker)... You'd be surprised at the number of tenants who immediately "play ball" when faced with their walking papers.

    A legal Eviction is something that costs time & money (and often requires an Attorney if you're Owning/Managing under an LLC). But a 30-day Notice to Vacate is just that - an amicable termination of the Lease Agreement. If at the end of that 30 days, the tenant refuses to vacate - most states allow you to seek twice the monthly rent in legal damages (more than you could get under a normal eviction).

    The point being - make this tenant aware that there's a "new Sheriff" in town. Not a mean or nasty Sheriff by any means... simply one that expects all parties to honor the obligations they agreed to upon signing the Lease Agreement (grown-ups who sign Contracts have to honor Contracts like grown-ups). If he/she refuses to work within the boundaries of the Lease Agreement - there's no reason to continue the relationship. The same holds true with the painting of the exterior - this is your property, not theirs. It's not difficult to remind them of this so long as you remember that the law - when used appropriately - is on your side (the law which allows you to tell them: "thank you for your time as tenant... best of luck to you in the future.")

    The next time you communicate with this individual be friendly, be courteous - but by all means... be the Owner.

    Cheers.

  • San Francisco, CA · Member since 2017 · 74 posts · 64 votes
    9y

    You can also raise the rent really high so they move out....

  • Sunnyvale, CA · Member since 2017 · 4 posts · 0 votes
    9y

    Bryan/Deanna/Jason,

    A huge thank you!  All of you have given me valuable information that will allow me to proceed in a proper manner.  I didn't expect such great responses so fast.

    With that said, I will take action accordingly and update with results, in case anyone else who has similar issues comes across this post will have the information at hand.

    Thanks again!

  • Joshua DiazPro Member
    Rental Property Investor · Bronx, NY · Member since 2015 · 269 posts · 165 votes
    9y

    @Sean Peters thank you for keeping up updated! All valuable information is most appreciated.

  • USA · Member since 2017 · 102 posts · 62 votes
    9y
    I learned a few things from this thread. Thanks.
  • Denver, CO · Member since 2016 · 82 posts · 46 votes
    9y
    Originally posted by @Bryan Reid:

    It is possible that if your uncle repeatedly let late fees slide, that he (and as a result, now you) have effectively waived your right to collect those.  Same thing about being strict with rent being due on 1st.  An attorney should be able to tell you.

     I'm not sure the name of the legal principal that you are getting at here, but a Texas JP judge once mentioned this in court.  Basically the idea is that if you have a written contract with specific terms (like late fees), but you repeatedly play out the relationship with different terms (like not assessing late fees), then it is possible that the contract can effectively be "modified" or "altered" simply by your actions.  I would presume that it would wake a sophisticated tenant to make such an argument, though.  To my knowledge, the judge would have no place assessing such a finding unless the tenant claimed it as a defense.

    Definitely something to keep in mind, however.

    Always enforce your lease.  No exceptions.  

    On a side note, your lease should also contain an "application of funds" clause that specifies all monies submitted by Tenant are applied against the oldest charges on the ledger first.  When that is done, the late fees are paid first and the rent is subsequently short paid.  Now you are pursuing rent in court, not late fees.  Make sense?  For example - 

    -Rent equals $1000.

    -Tenant pays late in March, $100 late fee assessed.

    -Balance owed in April is $1100 total.

    -Tenant pays $1000.  

    -You apply $100 to the late fees since that charge is older than the April rent charge.

    -You apply the remaining $900 to the April rent.

    -$100 April rent remains due, late fees begin to accrue, you file for eviction, etc.

    After one such month where you actually go to court and the judge rules in your favor, the tenant will get the idea - and start complying with your lease (if they can afford to do so; if not, they need to move anyways). 

    Depending on your lease and state laws, a modification of this that I would recommend is to simply decline partial payments all together.  Thus, if the tenant owes $1100 total on the ledger, you don't accept a penny short of $1100.  Same deal here.  They might try to test you on it, but once they get served by the sheriff or have the judge rule against them in court, they will begin to comply with your lease. 

  • Real Estate Agent · Lexington, KY · Member since 2017 · 68 posts · 44 votes
    9y

    @Travis Hughes great advice on lease terms.  And yes, I agree that a judge probably shouldn't consider the 'waiver' argument unless the tenant knows to bring it up in an eviction hearing.  Unfortunately many judges, especially in some jurisdictions, are going to try to do anything in their power to side with a tenant over us evil landlords :)

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    Sean Peters said:  ( I am currently in a situation where one of our retail property tenants is refusing to acknowledge and pay late fees as stated in the lease. )

    I am seeing a lot of posts on this topic with opinions but nobody mentions the fact that the poster said a retail property.

    By saying Retail Sean are you talking about commercial real estate? If so a dispute with a lease agreement or contract generally falls under business landlord tenant laws and not residential which is another Universe entirely.

    You might want to consult a commercial real estate attorney local to the property to get  a quick review and see what your actual rights are. Usually 300 to 400 for an hour.

    States differ with residential and landlord business tenant laws.

    No legal advice given.

  • Rental Property Investor · Indianapolis, IN · Member since 2017 · 104 posts · 47 votes
    9y

    I would make sure that your lease states to what order any payment will be applied. 1. Damages 2. Late fees 3. Rent. That way if they don't include late fees in the payment they are actually shorting you that months rent. 

  • Member since 2016 · 13k+ posts · 12k+ votes
    9y

    If your state legislation allowes you to non renew a lease, term or M2M, I would not even bother attempting to collect on this tenant. I would give notice to non renew and find a new tenant to properly train from the start.

    Tenants like this one are a waste of time and effort to try and retrain, it is easier and less costly to replace in the long run. There is no reason for a landlord to think that keeping a difficult tenant is better than training a new one.

    Landlords that have a lease that they are not enforcing are always their own worst enemy. The tenant is not the problem. Landlords have only one card to play, if they do not have the stones to play it they must accept what ever their tenants are prepared to dish out.

  • Real Estate Agent · Lexington, KY · Member since 2017 · 68 posts · 44 votes
    9y

    @Joel Owens Ah yes, I hadn't seen that this is a commercial property.  I misread 'retail' as 'rental'.

    Big difference there in landlord/tenant rights.

  • Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    You should apply ANY payments, FIRST to fees & invoices, then to RENTS.

    This will payoff fees +- invoices and leave rents partially or totally unpaid.

    Now send 3-day pay or quit for unpaid rents.

    Attach a reconciliation report of the fees+invoices, payment recieved, allocation to fees+invoices, partial payment of rents.

    This a common accounting practice :grin:

  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    9y

    @Sean Peters

    I missed the word retail in my - obviously hasty - initial read of your post.

    Those six letters change everything and @Joel Owens post is where you need to put your thoughts.

  • Sunnyvale, CA · Member since 2017 · 4 posts · 0 votes
    9y

    Thank you to all who posted.  Each and every one of you gave me excellent input.  Sincerely appreciated and this is truly an excellent forum.

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