Late Fee "grace period." Why?

17 Replies

Most leases I've seen have a "grace period," rent is due on the first, but a late fee is not assessed until the 3rd or the 5th. We've had this in our leases and it has not served us well, and to be honest, we have included it because it seems to be an industry standard, though I don't have a clue how it benefits the landlord. Anyone have a good reason for why you should offer a grace period? Why shouldn't rent be due the 1st, and a late fee assessed at midnight?

Anyone have a late fee structure that has worked well for them and does not include a grace period? Anyone successfully use a progressive late fee that grows daily up to the point that notice is served? Has that worked?

Hello Corby,

You should check your local property code and see if they have a required a grace before you can charge a late fee.

In Texas the Property Code prohibits assessing a late fee until rent has remained unpaid for at least one full day after the date on which the rent is due.

Kevin

My leases add $10 per day until the rent is paid. The tenants who pay online always pay it. It is harder to enforce on those who pay by check but I am usually successful at collecting late fees. When I have asked for this fee in court, one judge (~5 years ago) capped the fee at $100. (The rent for that house was ~$1,000/month.)

Even though you may have rent is due on the 1st of the month in a Lease Agreement, some how, tenants, even customers, believe they have a grace period, which to them means that rent is not due actually on the 1st, but on the date you charge that late fee. 

My lease agreement states the facts and nothing but the facts, and I never use the word "Grace Period" in any of my contracts.  This is what I say.

Rent is due on the 1st of every month.  If rent isn't in my office on or before the 1st of the month then you will be sent a Notice to Quit for non payment of rent.  

If rent is not received in my office on the 5th of the month then you will be billed a late fee of $25.00.

THE ANSWER TO CORBY'S QUESTION

Rent is due on the first of every month, and if not received in my office on or before the 1st of the month then I send out that NOTICE TO QUIT for non payment rent.  You see, you can't even file for an eviction until that Notice to Quit is sent. 

By sending that Notice to Quit I have protected myself, plus if rent isn't received in my office on or before the 5th then I've accumulated more money, a late fee of $25.00, yet the Eviction process is still going on.  I haven't lost time.  This is why you never wait until you have to charge anyone a late fee to file that Notice to Quit.  You always file it the day after the rent was due in your office. 

Then if rent isn't received in my office on or before the legal day requirements of filing that Notice to Quit in a court of law, then I can file that Notice to Quit right away, after the time has elapsed for them to have responded to that Notice to Quit.  I haven't lost time.  Because  TIME IS OF THE ESSENCE  !!!  

If you actually call something a GRACE PERIOD, then the courts can construe this to mean that the tenant has until the 5th (I'm using that as an example) to pay their rent and give them a leeway to have the Judge say to you, well you've allowed them to pay rent on the 5th all these months so you have changed the contracts due date.

I never give the Judge or the Tenants a "Loop Hole" to where a Judge can use his or her opinion to award the tenant(s) for bad behavior. 

So the major difference, is that no matter what, you send that NOTICE TO QUIT, the very first day rent is late.  (And still charge a late fee....but never call it a grace period.  Whenever a tenant would say grace period to me, I corrected them immediately)

So you have to be very careful in the wording of your Application Forms, and Lease Agreements, and even verbal agreements.  

(P.S. Corey)  Your little baby in your picture looks like a real cutie pie.  Okay that's the soft side of me.  Now...back to business)

Nancy Neville

Grace periods allow for the honest "I forgot" for a good tenant. My decision to offer a grace period is based on the tenant pool that a particular rental will attract.  I have also offered $10 discount if the rent is received on or before 10 days before the due date and that works well for some.   

      I collect rent electronically, so I know that if the rent payment isn't initiated by a certain day, it will be late.  On that day, I send a friendly reminder of the need for payment to begin and a reminder of the consequences.   This works well for me and conditions the tenant to prompt payment.  I've never had to charge a late fee.

For me, rent is due on the 1st and late on the 2nd, unless the 1st is a weekend or holiday.  In that case, it is due the next business day.  Keep in mind that my state laws support this.

I tried the grace period before and tenants waited until that day to pay.  Some even pushed a few days after that.  That is totally unacceptable.

I did do a per day charge on late fees before, but am now converting to a fixed amount.  The per day did not work out too well and it was an accounting nightmare. I do think that the per day late fee may violate state usury laws (depending on the state) if set too high. 

Thanks to all for your two cents- sounds like this has been a common struggle for many landlords- some really good advice here. @Nancy Neville , thank you for your especially detailed response as well as the compliment on how cute my son is- you're right! Luckily he got his mom's good genes!

I'm in the process of removing mine. Ive had several tenants actually have the gull to say rent isn't even really due til the 3rd because they get a 3 day grace period. I actually have to explain to them that it's for a moment you forget or working overtime, insert crazy happening here and couldn't get it in the mail. It instantly tells me over and over again I made a bad choice renting to them.

It is the law here in Tennessee. You must allow 5 days (or if day 5 falls on Sunday or a legal holiday, the next business day meaning it could be up to 7 days) before you can charge a late fee, and you cannot charge more than 10% of the rent.

I have had grace period with tenant. One thing to remember/enforce is the late fee may start after the grace period but the rent is late pay after the due date. One day late is still late - just the fee is not assessed yet.

I have also had a incentive to pay early - it was never paid early but we tried that out.

My rental is about 3 miles from my house... When a tenant places a check in the mail it travels 60 miles away, where it is sorted and then re-routed to me and travels 60 miles back to me. If everything is working as planned that can take 3 days. When it does not it takes up to 5. My lease has the 5th as the last day, I do this because of my state's common practice. It causes me no nevermind and I am certainly not in this for the "Gotcha!" game of collecting a late fee from a good tenant. If I do not receive the rent on the 5th I simply call the tenant and tell them as much and instruct them to send a $50 late fee. 

I will say that since transitioning new tenants to cozy- Their rent is in my account on the 1st of the month. I don't pay the extra, but I guess since I list the rent due on the 1st- they draw a few days prior.

Sometimes the 1st falls on a weekend or holiday. Snail mail takes a few days and while I prefer online payment regular mail is an option.  We live in a practically zero percent interest rate environment, those extra few days are not material to me as long as the tenant consistently pays. My lease has due on the 1st and late fee after the 5th, I believe that's fairly standard and doesn't bother me. 

This may come as a shock. But I was once late on rent. Not because I didn't have the money just because I honestly forgot to submit the check. I got a reminder and paid. No harm no foul. That's how I run my business for now.

Look, if I were managing C class rentals and renting to guys who paid $500 per month per door, I suspect I'd be really strict on enforcing my on time rent payments. And I suspect I'd have a lot of problems regardless of how strict I run my business. The fact of the matter however is that my tenants have mostly been around for years. Two times in the last three years a tenant has told me, "I'm going to be late this month, my paycheck won't hit until this date." Both times this has been because of a holiday weekend.

Both times I waived the late fee and told them to have a great holiday weekend, but that if it happens again I will be enforcing my late fee.

These people are paying $1300+ per month per unit. They have reasonable jobs (teachers, factory workers, healthcare, construction). They have never given me real problems and appreciate being treated like human beings. I appreciate the communication and honesty. I also appreciate the fact that I have to go over there just a few times a year. That's worth some goodwill in my book.

I hope they stick around for another 5 years.

That is what a grace period is to me.

That said this relationship ends the moment that I believe they are incapable of holding up their end of the relationship. I'm in this for the $15K+ in rent per year, not for $50 on a late month. That's the material part of the business model for me. Preserving that with goodwill is the biggest key.

"Find a good tenant and treat them like royalty" - I believe Michael Swan said this on a recent podcast

@Corby Goade If your tenants are paycheck-to-paycheck (a lot are) the "grace period" can just makes things easier if the first is on a Sunday. If it's on a Sunday but the bank is closed Monday, etc. If the employer check doesn't get deposited until the 2nd. For what it's worth, what I've done is move the "rent due" to the 5th or 6th. That makes away any of those issues (read: excuses).

Rent is due the 1st. If that day falls on a holiday or Sunday, rent is due the next business day. PERIOD. 

Late fees accrue the first day rent is late. After three days, you get a "Pay or Quit." (Your state may have different time periods, etc. Check first!)

To halt the eviction, all rent plus accumulated late fees must be paid to date. No partial payments accepted.

I go over this in detail before the papers are signed; if the tenant feels they aren't able to meet this requirement, they might find a different property more suited to their situation.

When MY mortgage holder decides I can make late or no payments, maybe I'll re-visit the tenant's payment schedule.

Originally posted by @Kathleen Leary :

When MY mortgage holder decides I can make late or no payments, maybe I'll re-visit the tenant's payment schedule.

Every mortgage I've ever had has had some form of grace period before a late fee or penalty. 

Why a grace period?

Because life happens.

Some people like to start OD'ing on Maalox and mailing nasty letters, etc. on the 2nd when the rent is due on the 1st. So be it.

Landlords don't get to dictate paydays any more than tenants can predict unexpected expenses.

REI is a people business - a business, yes, but still a people business. Buildings and dollars don't rent apartments, houses, etc. People do.

Stuff happens with people. Fact of life.

Typically, the mortgage payment is due on the 1st, but late after the 15th, depending on the lender and the terms of the loan. If you can't cover late rents, heaven help you if you have a vacancy or major property-related expense (fire, storm / flood damage, etc.).

As previously stated grace period and late payment are two entirely separate issues. IF your state codes do not require you to provide a grace period before the late fee takes effect you should not have a grace period. "Opps" I forgot is no different than any other excuse. Rent is due on the first, late on the second, excuses do not change that fact.

Notice to pay or quit should always be issued on the second regardless of late fees. When they give there excuse for why they did not pay on time the landlord gives their excuse for why a pay or quit is issued.

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