How to Assess Late Rent Fees

Of all the issues that face a property manager, late payments top the list. When a tenant is consistently late with his rent, it can strain the relationship. Assessing a late fee is reasonable and for some tenants, a good incentive to pay on time. However, there are rules regulating how much you can charge, and when.

Instructions

Difficulty: Moderate

1. Prevent late payments by spelling out your policy of assessing fees in the original contract. In addition, prepare a separate brochure or handout for new tenants that describes your policy in detail to prevent the, “I thought there was a grace period,” defense.
2. Refer to your state regulations if you live in a rent-controlled area. You may still have the right to assess a late fee but your state housing regulation board will determine it.
3. Adhere to common sense late fee assessments to avoid a lawsuit. Even if you don’t live in a rent-controlled area, legally, you can’t charge an excessively high late fee. Although that term is subject to interpretation, a good rule of measure is to charge not more than 3 to 5 percent of the rent.
4. Assess the late fee charge not before the 5th day after the rent is due. If you charge the fee sooner, you may not prevail in a lawsuit accusing you of unreasonable terms.
5. Moderate a late fee that increases each day it is not paid and set a limit on how high it can go. For instance, you can charge a late fee of $5 for the first day the rent is late and then $3 a day thereafter, until you reach a limit of $25. If a tenant is still late after the limit is reached, consider starting eviction proceedings, unless you feel you can resolve the situation in another manner.

Tips & Warnings

• You may be legally liable if you try to pass off excessive late fees as “early payment incentives.” If you offer a tenant whose payment is $700 an early payment incentive, reducing the amount by $200 if paid on the due date, a court may find you are charging excessive late fees and hiding them in your wording.