Investor · Fort Lauderdale, FL · Member since 2012 · 1k+ posts · 465 votes
Just wanted to brain storm a deterrent for paying rent late. I know we all have to deal with this from time to time.
Some charge a fixed late fee after a grace period; Some charge a per day late fee;
How about a rent increase if rent is habitually late?
Let's say the monthly rent is $1200, if 3 days past due date you charge a $50 late fee.
What if the lease says rent is $1200, if 3 days past due date you charge a $50 late fee. If you are late three times, from that month forward the rent is automatically adjusted to $1250 per month, and the late fee still applies.
This is one of the reasons I've recently started doing Month to Month leases. It allows me to do this with a 60 day notice. I even tell them when we sign the lease that if they pay on time I won't increase the rent.
I am considering this now with a habitually late tenant.
But instead, I was thinking about having them enter a new lease at $25/mo higher (they are already near the top of market, or I would do more), with a late fee after 5 days, then daily.
This is one of the reasons I've recently started doing Month to Month leases. It allows me to do this with a 60 day notice. I even tell them when we sign the lease that if they pay on time I won't increase the rent.
I charge a per day late fee of $5. I don't know about increasing the rent for habitually late people - I say just keep collecting the late fees, and make them high enough that they work as a deterrent.
What I always thought was a brilliant idea (well two of them):
1. No grace period. Rent is due on the 1st, period.
2. A bonus for paying early. A long time ago I worked for a guy who owned 3 houses on his street. If the rent was in his mailbox by midnight on the last day of the month, you got $20 off. I think rent was like $420 or something. Rent early - $400. Rent on the first - $420. Every day after the first - tack on $5. He seldom received late rent.
To make it a deterrent, make the first late fee significant - at least $40 or so, then $10 each day thereafter rent remains unpaid. You want to make it a deterrent, but not punishment. Some landlord's count on the late fees as extra income but I prefer the tenants pay in full and on time. If you start too low with late fees, they don't care since it's not going to add up to much for a while. If it's a tenant that's tight, it might be time they find a more affordable place. The late fee should be for those that just keep forgetting or put rent on hold as a lower priority. It should be the top priority and hopefully the late fee will do that.
I was in small claims (eviction) court six or so months ago and heard a case ahead of mine where the apartment manager charged $X per day for late fees. The judge hearing the case asked the manager to clarify/verify the late charge, then asked for a ledger and the lease. She then spent about 3 minutes going over everything. Finally she said 'are you aware that the late fees you are charging are against NC law?' The manager said 'no'. The judge threw out all the late fees and (if I recall correctly) gave the plaintiff possession only (no monetary judgement). I don't think the defendant knew enough to contest the eviction or to file a counter claim, and the judge didn't offer any advice. That was interesting... at least to me.
The point is know what your state law is regarding late fees. Also know how courts handle 'disguised' late fees. I voted for @Chris K. 's post since I believe the method he describes will work in all states (assuming no rent control, etc.)