Late fees and month to month lease

Ronnie Woolbright · 2017-01-27T08:25:21-08:00

HI all,I have a tenant (Texas) with an upcoming lease expiring and wondered if I can raise the late fee while going month to month? Does this require a new written lease or just a written notice regarding a late fee increase? They are good 3 yr tenants who faithfully pay a late fee each month. When talking with a mentor of mine he mentioned my fee was too low and should raise it. Its at $35 now plus $5/per day additional. I usually get rent on the 10th-15th of each month and want to reign that habit back in by going to a $75 initial fee with $10/day additional. Also would be raising the rent for the first time on them in three years since it is well under market (from 995 to 1150). The market rate on this home is about 1300. I wanted to stay month to month so that I can test their ability to pay the higher rent and see if they will be able to get on schedule again. If they cant get with the program I plan to terminate the lease in the summer and relist it at the market rent of 1300.Thoughts?Thanks,

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Retired Landlord/Author · Commerce Township, MI · Member since 2012 · 1k+ posts · 1k+ votes

9y

Actually, it sounds a bit like "gouging". Judges don't really like a high per day late fees on top of a late fee.

Also our mission, as landlords, should be keeping our tenant's long-term. We want them to trust us, be happy, and keep the rents at a decent price. I can see raising rents a bit, but late fees and then per day late fees, in my opinion, is way too much. (Especially $10 a day)

You say they are good tenants, don't price them out of their financial comfort zone. You want to keep them, so give them an incentive to stay.

Nancy Neville

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Jim Cummings

Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes

9y

Ronnie

The Texas Real Estate Commission (TREC) Lease Extension form provides an OTHER Block in which you & Tenant can agree to Amend the ongoing lease. A more straightforward idea would be to do a SHORT-TERM Lease with your new parameters.

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Greg H.Pro Member

Moderator

Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes

9y

Originally posted by @Jim Cummings:

Ronnie

The Texas Real Estate Commission (TREC) Lease Extension form provides an OTHER Block in which you & Tenant can agree to Amend the ongoing lease. A more straightforward idea would be to do a SHORT-TERM Lease with your new parameters.

I believe you are referring to a TAR lease as TREC does not promulgate lease forms or addenda

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Jim Cummings

Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes

9y

Greg

My BAD ! TAR Form 2005.

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Deanna McCormick

Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes

9y

Does your state have regulation regarding late fee's. Check landlord tenant laws before you start something that's not inline with regulations. Some states limit % of late fees, it cant' exceed like 5% of monthly rent, so check that.

As for letting them know, give them written notice before the 1st that the rent increase will start the following 1st of the month, and that the late fee amount is now $$$. I believe a per day late fee is wrong,Id do a flat fee of $50.00 if not paid by the 3rd and basically just plain file if they don't pay in full by the 5th. You've trained your renter to pay as they go.. and they will continue to do so.. So either put your foot down or keep expecting them to pay late.. honestly a late fee is bonus money. I'd rather have the rent on the 1st. but late fee's generate income.

You've probably had 3 years of little upkeep in the unit and no loss of income for turning the unit. So with your new month to month lease increase I'd expect them to raise a question about doing some interior painting or carpet cleaning to keep them happy.

Otherwise move on and get new tenant and update and charge market rent.

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Ronnie Woolbright

OP

Investor · Arlington, TX · Member since 2015 · 22 posts · 13 votes

9y

Thanks Jim, I think the best way would be to just sign a short term lease to keep everything well documented.

Nancy, I don't feel that $75 is gouging but maybe I need to reconsider. I should have clarified that I have received my rent late each month for the past two years (anywhere from the 10th -15th of each month) and am tired of dealing with it. They are good tenants in the fact that they are clean and keep the property as such, but always pay late. I am trying to find a way to train them to pay on time. A $35 fee does not seem to do that right now because they continue to pay that month after month and $5 a day is not much motivation to get rent in quickly after the initial fee is charged. You are right that I aim to keep tenants long term and I am usually good about keeping rents at least $100 under market, but right now we are $300 under market. With the recent property value run ups we have seen in texas, my property taxes go up each year and I have never raised rent in the past 3 years.

Thanks for the thoughts. I have been thinking through how to approach the renewal in a fair way and this gives me more to think about. However I do it, the new fee will be implemented across the board with all the properties I manage, but this is the only consistent late payer I have right now.

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Ronnie Woolbright

OP

Investor · Arlington, TX · Member since 2015 · 22 posts · 13 votes

9y

Thanks Deanna,

From my research Texas law says late fees are allowed within reason which leaves it up to individual interpretation. I just wanted to get an idea of what seems excessive based on our market and what we are charging in rent.

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Mindy JensenPro Member

BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes

9y

@Ronnie Woolbright , if you have only a few properties, consider changing the due date to the 10th. Ask them why they are always late with the rent, and see if the 10th would make it easier for them to pay on time.

It sounds like you don't want the extra money that comes in the form of late fees, you'd rather have rent on time. If it wouldn't be a big inconvenience to you, but would free them up, consider that.

[email protected]Podcast Guest on Show #261

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Rick S.

Fort Collins, CO · Member since 2014 · 397 posts · 161 votes

9y

@Ronnie Woolbright I agree with @Mindy Jensen as maybe that is how their pay schedule falls. Would you consider splitting the rent into two payments on a bi-monthly plan or even bi-weekly as maybe that would help them get on track? I would rather keep good tenants but gradually raise the rent.

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Account Closed

Investor · Charlotte, NC · Member since 2016 · 374 posts · 189 votes

9y

Sec. 92.019. LATE PAYMENT OF RENT; FEES. (a) A landlord may not charge a tenant a late fee for failing to pay rent unless:

(1) notice of the fee is included in a written lease;

(2) the fee is a reasonable estimate of uncertain damages to the landlord that are incapable of precise calculation and result from late payment of rent; and

(3) the rent has remained unpaid one full day after the date the rent was originally due.

(b) A late fee under this section may include an initial fee and a daily fee for each day the rent continues to remain unpaid.

(c) A landlord who violates this section is liable to the tenant for an amount equal to the sum of $100, three times the amount of the late fee charged in violation of this section, and the tenant's reasonable attorney's fees.

(d) A provision of a lease that purports to waive a right or exempt a party from a liability or duty under this section is void.

(e) This section relates only to a fee, charge, or other sum of money required to be paid under the lease if rent is not paid as provided by Subsection (a)(3), and does not affect the landlord's right to terminate the lease or take other action permitted by the lease or other law. Payment of the fee, charge, or other sum of money by a tenant does not waive the right or remedies provided by this section.

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Ronnie Woolbright

OP

Investor · Arlington, TX · Member since 2015 · 22 posts · 13 votes

9y

Rick S. and Mindy- both good ideas. I tried to extend the due date to the 8th at one point because they said that is when they got paid the first paycheck of the month. It worked for a few months but then they gradually started paying a week or two beyond that.

I do think that splitting rent by two might help them budget a little better and is worth considering. My thought process was to raise the late fee and "encourage" them to save up enough to get ahead. I could see things getting complicated with a due date of the 1st and 15th. Has anyone tried that and what happens to late fees if they are late on both days?? :)

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Anthony Hurlburt

Salt Lake City, UT · Member since 2016 · 199 posts · 190 votes

9y

@Ronnie Woolbright You are both raising the rent and the late fee, but want to test if they can handle the higher rent when the have been habitually late for two years. You likely already have your answer. As a landlord you are entitled to market rents. If you raise their rents and their late fees just be prepared for a vacancy, either by you needing to remove them for failure to pay, or them leaving voluntarily to stay in the price range they can afford.

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Brad LarsenPro Member

Property Manager · San Antonio and Austin, TX · Member since 2016 · 377 posts · 380 votes

9y

@Ronnie Woolbright Hello Ronnie - you have a few things here I feel would be worth diving into and for the benefit of the others.

1) Changing the terms of the lease. As mentioned above, simple deal....once the original lease is up you are required to give a tenant a 30 day notice of any changes. It's already on the standard TAR form. You can do this in writing through the TAR lease extension form and then change the terms of the late fees. But, maybe do a new lease all together and put it in writing a bit more clear with a new form. I would recommend that first.

2) Late Fees. In my experience, most landlords do not charge a sufficient enough late fee to discourage bad behavior. Which do you want - the rent paid on time or late fees? We want the rent paid on time, so our late fees are very high. Since we have standardized them, we are in compliance with Fair Housing and Texas Law.

Understand we simply want the tenant to pay on time. If you want late fees, keep them low and the tenant will put no real concern in them and continually pay late making excuse after excuse. Would you figure out a way to pay your mortgage on time if the late fee was $500? Or even $5,000? Sounds excessive....and it is....but without real consequences, how important is something?

3) Zero Tolerance. In reading some of the above posts, it would appear you have become a little laxed in enforcing the lease agreement. By doing this, YOU are violating Fair Housing Laws. By bending or giving on any of your written agreements and policies, you can be accused of offering un-fair treatment. Remember, favoritism is discrimination. When you are deviating from the set agreements in place, you can be accused of offering favortism because someone is.....white/black/green/orange/married/gay/etc...

in going forward, my advice is to get your tenants on a higher late fee schedule to make it very painful to pay the rent late. Establish a rock-solid due date for rent, and let them know you will have ZERO exceptions from here on as you are forced to comply with the Fair Housing laws and can not deviate from the lease as written under any circumstances.

Good luck out there!

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Late fees and month to month lease

Late fees and month to month lease

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