Hello BP family! So I am a newer Investor/Landlord (since 2014). My question to fellow investors and landlords is how do you charge your late fee structure on your lease agreement, and how much do you charge? My state of Minnesota allows me to charge a max of 8% of the rental agreement ($1400/month). I was curious if anyone has another method or knows of any that work better than just a flat late fee like I charge? I don't want to turn away good renters, but I also don't want to attract tenants that feel a smaller fee is easier to manage, say $25-$50. My Current late charge section includes the following taken from my current lease agreement: "A late fee of $112.00, (not to exceed 8% of the monthly rent), shall be added and due for any payment of rent made after the 1st of the month. Any late fee(s) are due upon the following month's rent due date. Any dishonored check shall be treated as unpaid rent, and subject to a additional fee of $25, in addition to applicable late fee charges" I currently work in the financial field full time, so fee's are fee's. The banks don't let anyone slide, and charge you an overdraft or late payment, but being new to the real estate game, is this along those lines as well? Any ideas to improve? Is that too steep of a fee? What works for you? Thank you in advance for any input!!

@Alexander Lang I would add to your lease clause about late rent, that accepting rent late in any month, does not waive the due date of the 1st, or something along those lines. Accepting late rent can effectively change the due date. Your behavior can be considered a waiver of the terms in the lease requiring rent on the first. I guess, if every time you allowed them to pay late, that you also give them written notice that rent is due the first and you haven't waived your right to the due date by accepting late rent this month, that you might keep the due date in tact. In CA, if a tenant challenges your late fees, you have to prove that you incurred actual out-of-pocket losses due to their late rent, so no landlord would probably win on their late fees in CA. I like the policies listed above that put a date that eviction will be filed, so they don't think they have the option of paying at the end of the month, if they can somehow come up with the late fees. I gave my tenants one free pass, as I called it. As long as they paid by a reasonable date that we agreed on. And I'd explain to them that they are getting their one free pass, and that if they pay rent late again, it will be a $50 fee, but if they do it too many times, I'll have to just give them 30 days notice to move out (M2M agreements). I rarely collected any late fees. Some of my tenants relied on financial aid, and if their FA was delayed, I'd just get them to get a letter from their FA office, or have them email me to tell me that it was in fact delayed, and when it was expected. We worked with those tenants and didn't charge a late fee. At most, it would happen twice a year.

In NC you are limited to 5% of the monthly rent for late fees. I would charge the highest rate I could charge. My policy is that rent is due on the first and late after the 5th and evictions are commenced on the 15th. I started using RentMonitor a few months ago and it automatically adds the late fee on the day you want it to. No more partial payments no more excuses, no more running to the post office and bank. I require from here on out that all my tenants must use this service to pay their rent. They also have great technical support to get you setup and you just pay as you go. $3 flat fee for every transaction. Well worth the money if you ask me. And one last thing. Never, Never, Ever waive late fees. Take it from me, every time I have in the past it has always come back to bite me.

@Alexander Lang - I used to charge by the day $5. That got tedious and really convoluted particularly if you have a grace period and you have to ration do you retro calculate back over the grace period as days late or not...it led to unnecessary tenant arguments. I now charge a flat $50, no grace period, and I have a similar fee ($35) for any NSF payments (I specifically note in the agreement that a NSF payment will undoubtedly create a late fee so it is clear it's VERY COSTLY to write me a bad check). I make one caveat with my tenants; if they mail the rent to me, as long as it is postmarked before the 1st day of the month, even if it arrives late, I will not charge them a late fee. I have collected one late fee on five properties since I have implemented that policy, and I'm much happier to have my calculated rent on time for my bills than to make an "extra" $15-50 every so often because my tenants can't get it together. @David Moore - I agree with the situational consideration. It's why I keep the postal caveat in and I've also given one tenant a break by waiving her rent one month (she was in the hospital and out of work for nearly three weeks), and allowing her to add $100 to the rent for the next seven months to catch it up with no additional penalties. It's called being a decent person who is about their business! Nice job, sir!

I like the saying "Good fences make good neighbors." Late payments should be somewhat painful. They should have clear rules. When a tenant tells me they are going to be late, past the applicable grace period. I thank them for letting me know and ask them to include the late fee as well. If you take out a payday loan you pay a crazy rate, but if it's what you need to do, you do it. You're reference to banking is perfect! You really have to have those clear boundaries, and stand your ground.

Lease Agreement - Late Charge and how much to charge?

Victor N.

Investor · Meriden, CT · Member since 2013 · 201 posts · 145 votes

Lease Agreement - Late Charge and how much to charge?

Most Popular Reply

41 Replies