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ContinueA late fee for rent is a legal way for landlords to encourage on-time rent payments and can usually be charged as soon as the rent grace period expires.
Written by
Ben Luxon
PUBLISHED ON
22
Apr
2024
Late rent is one of the leading causes of evictions in the US. Preventing llate rent then is a central part of being a landlord. There are afew ways you can drecrease the chancesof late rent, these include thoroughly screening all prospective tenants, collecting rent online, and implementing late rent fees.
A late fee for rent is one way that landlords to encourage tenants to ensure they pay rent on time and in full every month. When it comes to setting the lat fee landlords also need to be aware of rent grace periods - both the best practice for setting and enforcing and any legal state requirements.
Using a purpose built tool like Landlord Studio for rent collection will save you time and help ensure timely rent payments.
A late fee for rent fee is exactly what it sounds like, it is a fee charged to the tenant if they don’t pay rent by the due date, as stipulated on the lease agreement.
A late rent fee has two purposes. First and foremost it is to encourage tenants to pay on time. This isn’t a way for landlords to make extra money off their tenants, rather it should be thought of as a way to ensure rent is paid on time and in full every single month.
The second purpose is to compensate the landlord for the additional work that goes into chasing payment and the back-and-forth communication, as well as an increase in risk.
If rent is due on the first, the rent is deemed late on the second. Landlords can apply a late fee as soon as the rent is deemed late, unless there is a grace period detailed in the lease or mandated by state or local laws.
Grace periods are quite common and are usually between 3-5 days. They provide tenants extra time to pay rent before the landlord can legally charge the late fee or begin eviction proceedings.
Late fees are legal. However, they have to be written into the lease signed by both parties. To ensure legal compliance we recommend that landlords write into their lease both the late fee amount as well as when it will be charged.
The main purpose of late fees is to encourage on-time payments and compensate landlords for the extra hassle and risk of a tenant paying late. For these reasons, it’s a good idea to have late rent fees written into the lease.
Whilst it’s a good idea to have a late rent fee, it’s also worth noting that many landlords never actually have to charge these late rent fees. Late fees are to motivate tenants to pay on time. Be clear about the amount, the dues date, and exactly when a late fee will be incurred. This makes tenants less likely to pay late as they know you are serious about on-time rent payments and you will be chasing them if they are late.
The most common late fee amount is between $20 and $50.
You can also choose to set the late fee as a percentage of your rental price. However, make sure you check with your local and state laws to determine what the laws are around late fees amounts
Do a quick search online like “New York late rent fee limit” to determine whether your city has limits on the late fee amount you can charge.
Ultimately, the late fee amount should:
Keep in mind that you don’t want the fee to be so high that they put too much or unnecessary pressure on the tenant. For example, if the tenant falls behind on payments and then can't afford the late fees on top of the rent amount then it becomes impossible for them to get out of arrears - a situation which benefits no one.
As part of many landlords policy is the idea of setting a late fee for each day the rent is late. For example, $25 get's added on as a late fee each day after the grace period has expired.
When setting a rent late fee per day it's normal to only stack the late fee for a few days - often no more than five. If the tenant still hasn't contacted you or initiated their payment five days after the grace period is over you may need to start thinking about taking further action than late fees, such as a notice to quit.
You can use Landlord Studio to automatically set your late fees.
When you are adding your lease scroll to the bottom of the lease page and you’ll see a section that reads late fees. If you don’t log the payment as collected the software will automatically apply the late rent fee as owed income for that payment period.
You can use Landlord Studio to automatically set your late fees and collect rent online.
When you are adding your lease scroll to the bottom of the lease page and you’ll see a section that reads late fees. If you don’t log the payment as collected the software will automatically apply the late rent fee as owed income for that payment period.
Reduce late rent by:
A grace period is the legal amount of time the tenant has before you can charge a late fee.
For example, rent may be due on the first, but to give your tenant the best opportunity to get the rent to you you might have a five-day grace period. Meaning you wouldn’t charge a late fee until the 6th of the month.
Typically rent is only late after the grace period has expired. The grace period is a contractual stipulation (that may also be required by state law) that says rent is only late a certain number of days after the rent due date.
The standard grace period that landlords add to their leases is five days unless otherwise stipulated by state law. We outline the grace periods by state below.
Some state housing laws provide a grace period for a tenant to pay their late rent. Refer to the table below and check your state’s laws before filing a formal eviction.
That said, a landlord can always give a grace period or a longer grace period even when not statutorily required.
Some states, but not all, have legal grace periods. States that require grace periods typically want to provide tenants extra time to deliver the payment because transferring money is not always instantaneous.
For example, a mailed check might take three days to be delivered and tenants can’t always write the check-in advance if they’re waiting to receive a paycheck first.
The standard grace period that landlords set is five days. This is generally deemed a reasonable length of time for even the most forgetful tenants to complete their rent payment. However, some states specify a longer late rent grace period.
You can choose to write a grace period into your lease even if your state doesn’t require you to. There are several reasons you may decide to write a grace period into your lease.
Here are three reasons why landlords choose to have a grace period:
Not all payment methods are instantaneous. If a tenant pays rent by check in the mail or even online. The rent might take a few days to get to you. Landlords understand this and write in a grace period to allow for this time the money is in transit.
What this means is that they may not have sufficient funds to pay rent until their paycheck comes in. If they get paid on the first then having a couple of days to pay rent makes everyone’s lives a lot easier.
For those infrequent times where the tenant cannot pay rent on time – for no fault of their own (aside from lack of planning) a grace period is a life-saver. For example, sometimes rent days fall on public holidays.
As a landlord, you want to maintain a good ongoing relationship with your tenants. By giving a tenant a grace period you are giving your tenant the most opportunity possible to pay their rent, so that even if an unlikely scenario crops up they still have a couple of days to get the rent paid without having to worry about falling into arrears.
If the tenant still hasn’t paid their rent after the grace period is up there are a few things you can and should do.
Even if this is the first, and only time they pay rent late, they are violating the lease, a signed and legally binding document. If your tenant doesn’t pay rent on time then you have the right to begin pursuing an eviction.
Typically, landlords don’t want to evict their tenants. The process is long, arduous, and expensive. However, if a tenant isn’t paying the rent then you may have no other alternative. Starting the process sooner rather than later and making sure you have all the documentation you need is essential if you want to prevent the eviction process from drawing out.
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There are several different points when you might determine that rent is officially late. For example, if a tenant mails you a check before the rent is due but it doesn’t arrive until after your grace period is over, is that rent late?
You should decide at what marker rent is determined as being late and make sure you communicate this to your tenants.
Here are three markers that you might choose to use to determine whether or not rent is late:
This is the day the tenant schedules the payment or the tenant mails the check.
For online payments, this is when the money actually goes into your account. For checks, this is when you receive the check.
Be aware that as the landlord you determine the method for your tenants paying, so if you know that the process you’ve chosen takes an average of 3 days for you to receive it then bear that in mind and if you’re going to use this marker, make sure your tenants know.
This is often a sensible consideration as with certain payment types tenants can clawback their payment or in the case of checks, the payment might bounce. The money needs to successfully transfer into your bank account and be accessible to you before you can really say that rent has been paid.
We recommend considering all three of these points when thinking about rent collection.
Make sure your grace period and late fee policy are outlined and detailed legally in your lease. More than this, make sure your tenants understand how they need to pay rent, what the cut-off date is for rent payments as well as the consequences of late ent payments.
If your tenant is late and you don’t enforce your late rent policy then there is no reason for them to believe you will the next time. In this way, the motivation the late rent fee provides is removed. Make sure you are strict ad your tenants understand the seriousness of breaching the lease.
At the end of the day, you want your tenants to make their rent payments. So be understanding and communicative to help ensure they pay their rent on time.
You have bills to pay for your rental property, often due at the beginning of the month. You can also call your lender and ask to change the due date of your mortgage payments to the 15th of the month moving forward. This is a common way that landlords alleviate the stress of receiving rent payments on the first of the month, especially when there is a legal five-day grace period.
There are several features in the Landlord Studio that can be used to help you keep track of rent collection and late rent payments.
Landlord Studio’s online rent collection feature allows tenants to log in online view upcoming and historical payments and securely and quickly transfer money directly into your bank account. Additionally, they can set up automatic payments every month so they never forget again. Plus, the income will automatically be reconciled and tracked in our system. If payments aren’t made in time Landlord Studio can also automatically chase up tenants so you don’t have to.
Find out more about online rent collection with Landlord Studio →
These emails send out automatically when you set them to remind or chase up tenants. For example, you might set an email to go out 3 days before the rent is due as a gentle reminder that rent is due on the first of the month. Or you might set a rent overdue reminder notifying that rent has not been paid at the end of the grace period.
On top of this, you can set late fees in the app to automatically apply. These features save you time and money and make it as easy as possible to chase and enforce on time rent payments as possible.
Landlord Studio is an easy property management and accounting software and app designed for landlords.
Track income and expenses, run reports, collect rent online, find and screen tenants, manage property maintenance, and more.
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