Order to apply tenant payments

8 Replies

Hello,

What is the order that rent, fees, and utilities are applied when a tenant makes a partial payment?

For example, a partial payment of $600 was made for the following due:

$800 rent

$25 pet fee

$35 late fee

$40 water

and the PM takes his cut of $80 (10% of rent).

I understand that if the tenant had any remaining balance from the previous month, that would be paid first.  But then after that, how does one figure out the sequence?

My brother and I are partners, with me acting as the PM, and taking the fee, but we have no formal agreement on sequencing the payment.  We had to kick the tenant out so their last payment did not cover everything.

Please Help!

Thanks in advance.

Mark

Put it in your rental agreement. Here is an excerpt from ours:

"PAYMENTS.  All payments made by Tenant to Landlord after the tenancy commences, no matter how designated by Tenant, will be applied as follows: first, to any outstanding amounts due for damages/repairs, utilities etc.; second, to any outstanding service charges and fees from prior months; third, to any rent outstanding from prior months; fourth, to any service charges or fees due in the current month; and lastly to the current month’s rent." 

Marcia,

I suspected current month's rent would be last.  Is this in your PM agreement or your rental agreement with the tenant?

Thanks!

It should be in your lease. If it is not the tenant may challenge the order and if it goes to court a judge may side with the tenant since you wrote the lease and did not specify.

Originally posted by @Mark Wolka :

Marcia,

I suspected current month's rent would be last.  Is this in your PM agreement or your rental agreement with the tenant?

Thanks!

It is in our MTM rental agreement (or lease) with the tenant. Clearly communicated with the tenant at the start of tenancy and they agree to it in the contract. We do not use PM services, as we manage our own properties.

When a tenant makes a partial payment, we contact them immediately and inform them by phone and in writing how we applied the payment. If the remaining due is rent, it is much easier to proceed with eviction if need be. It would just require a 3-day notice for non-payment of rent and would process quickly through the court. 

Our tenants prefer to pay for what they owe us before getting to the point of us needing to serve legal notices. When a tenant chooses to do something that results in a fee or a charge for damages, we send them a form letter that shows what violation occurred and the associated costs. They tend to pay quickly to avoid legal notices and legal action.

Thanks, Jeff and Marcia.  I do not think the PM company we now use has the terms stated in the lease agreement for tenants as in your example.  In the PM/owner agreement, they have terms stating how money in the account is distributed, but that is another thing all together.  I'll mention it to the PM to include in the lease agreement going forward.

Thanks again.

Mark

In my lease I have that "fees" and "repairs" cost come first. Than rent. This way I can deduct everything first and go after the rent second. 

Just curious, how many doors are you managing? why hire a PM company?

Scratch that, informal question. My apologies.

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