All About Late Fees and Rental Properties
Have you ever wondered how to price your rental property? Deciding a rent for your property is easier said than done. You must take into consideration many important factors. This decision is difficult because it involves money. By quoting the right rent, you will attract tenants and make a steady source of income. On the other hand, what will you do when the tenants fail to pay rent on time? Should you quote a late fee? Some tenants find it difficult to pay rents on time. They may delay by few days, weeks or even months. This is when you should decide on a late rental fee. Before you charge a late fee, you must be aware of how long the rent was missed. The actual amount must depend on the duration.
There are many reasons why the rent should be paid on time. Most landlords depend on their rental income. Here are two common reasons to pay rent on time:
- Landlords may have monthly bills that are on due. This is when paying rent on time becomes important. Just like tenants, landlords have many bills to be paid. When tenants fail to pay on time, the landlords will have a tough time handling their payments! Doesn’t this sound scary?
- When tenants don’t pay rent on time, it will be very difficult to catch up! The moment a tenant starts falling behind, catching up needs lots of care. In fact, you must ensure that the next month’s rent is paid on time.
There are few scenarios when late rental payments can be considered. To begin with, you should be aware of when a rental payment is treated as late. You must mention these scenarios in the lease agreement. Here is a simple example: If the rent is not paid by “XYZ” date, it will be treated as late. The terms and conditions can be altered to suit your state’s requirement. Some landlords offer grace periods and others don’t. It is up to the landlord to decide if the rent is late or not.
Important terms and conditions you should include in the rental contract are:
- Grace Period: This is a window of time given to the tenant. The tenant must pay rent within this duration. If the rent was due by 10 to 20 days, the tenant can be offered a grace period of 5 days. Anything after this duration will be treated as late.
- No Grace Period for tenants: If you are not prepared to offer a grace period, it must be mentioned in the document. If the rent is not paid on time, a late fee will be considered. Once again, you must quote the no-grace-period clause in the contract.
Should You charge the tenant a late fee?
For most landlords, this is a million-dollar question. If the tenant doesn’t pay on time, it is the landlord’s decision to charge late fees. If the landlord is fine with late payments, there is no need for penalties. However, there are many benefits in quote a late fee. One, the tenant will not skip rents in the long run. He/she will make it a habit to pay on time. Two, the landlord would be able to cope up any monetary losses during the period. Some states are strict on the maximum amount of late fee a landlord can collect. Landlords should be aware of their state regulations.
So, how much are you prepared to charge?
The late fee depends on the landlord and the state. Also, it depends on the rent. If you charge a rent of 1000 USD, the late rental fee can be as high as 50 USD! If you are quoting a rent of 5000 USD, the late rental fee can be as high as 100 USD! These are imaginary figures that can be changed to suit your property. Nevertheless, you must not quote anything more than 500 USD from the tenant. State define late fees as a percentage of the rent. For instance, you must pay 4% the rent in Maine.
When should you collect the fee?
As suggested by its name, the late fee must be collected when the tenant skips a payment. Some states decide when the late fee must be collected. For instance, it can be collected when the tenant pays his/her late rent. If the tenant is going through a tough time, you can access partial payments. (Don’t forget to quote these terms in the rental agreement).
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