Who keeps the late fee?

Question

In everyone's experience, if a property manager collects a late payment fee from a tenant, is that fee typically kept by the property manager? Does it go to the owner? Some kind of split? Thanks!

Franklin Spees · Answer

I agree with @Steve Rozenberg  in that it takes money to chase money.  Sure, everything is negotiable in real estate and the management agreement regarding late fees can be negotiated as a split or all to the owner, but really those late fee dollars are like infusing additional capacity to us as managers to allocate resources of time and staff to promptly respond with notices, calls, and site visits (documenting all along the way if it were to go south).  The fact that the tenant is late by even one day and gets a notice and a call tells them there is a consistent structure in place and my rent has to be a priority.  This is the only way to achieve the respect and on-time rental payments in the long run.  We require in our agreements that we retain the late fees, but we also disclose it and explain why, which owners end up really appreciating.

Jean Bolger · Answer

My PM keeps the late fees. But only, of course, if the rent ( and the fee!) ends up collected. Meaning, if the tenant flakes out and leaves owing late fees those are forfeit and not paid out to the PM from the deposit or anything like that.

I didn't feel great about it at first, but I have a class C complex and I've come to understand how much door knocking, negotiating and cajoling ends up happening to get some of the rents. My PM  has even helped tenants apply for money from some of the county's short term assistance programs to pay their back rent once or twice. All that takes a lot of time, and it's not me putting in the time.

Steve Rozenberg · Answer

we used to split the late fees with our clients. However we changed our management agreements to have us retain all fees. If the company is doing their job this should not be a major issue, meaning tenants are selected correctly and they pay on time. If this is not the case then maybe they are selecting the wrong tenants.

We keep the fees because we send out certifed Mail notices, time spent contacting the resident etc.. There is employee time spent doing this to try and get the owners money. At the end of the day it is a business and there is staff time spent if they are going to track down the owners money.

But I would agree with the earlier post, make sure it is stipulated in the agreement before you sign, anything.

Jon Potter · Answer

Thanks @Dawn Anastasi I'll check those other threads.

Dawn Anastasi · Answer

Here are some helpful threads regarding other late fee topics people have posted on:

Does Your Property Manager Keep Late Fees?

Property Manager Gotcha

Who is Entitled to the Late Fee?

I found these threads by going to Google and typing in

"late fee" "property manager" site:biggerpockets.com

I hope this helps!

Joel Owens · Answer

Is your property management company LICENSED and INSURED to do business where your property is located??

Next is what does the PM agreement state as to late fees?? If PM agreement says that the PM will keep all late fees as compensation for additional collection efforts then you have your answer.

If the PM is keeping late fees but it is not stipulated in the contract then there might be an issue.

No legal advice given.

Who keeps the late fee?

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