Collecting Late Fees

14 Replies

My brother and I own a duplex in Lakeland FL.  Our late fee stated in the contract is 10% of the rent.  This comes into effect if the rent is not paid before the 5th of each month(4 day grace period after the 1st) plus an additional $25/day until rent is paid.  Is this to steep of late fees?  I really want to drive home the importance of making payments on time, however I'm brand new and also don't want to overkill.  Would love to hear some thoughts from others and how you deal with late fees.  As well as the best practice to enforce these fees and make sure we receive them.  Open for suggestions.

Hi Codey.  From what I have seen every complex/person has a slightly different late fee penalty policy.  My sister was late paying her rent recently and her place charged her like $30 per day after a 4 day grace period.  The 10% could be a little high as I don't know what the current rent is.  Hopefully you get quality tenants and this isn't an issue.  Hope this helps.

Some states do cap what you can charge.  Most if not all have had or still have restrictions because of COVID on late fees as well.  What you charge and what you demand/collect (as long as legal) is part of what kind of a landlord you are. Not sure what the rental rate is but 25/day could be 650 is charged 6th through the 31st and then add on 10%.  This would also depend on the area.  If this is a C/D area there is no way you will collect that.  It is so high a lot of tenants will simply ignore it.  And what if someone pays 10 days late and rent is 1K a really going to hold them paying an extra 325?  If you do they may just ignore it and force your hand.  If you don't you are showing your word doesn't matter.  

@Codey Yingling My lease states 5% on first day (after grace period) and 3% each following day, until day 10, which is when I would give them 3 day notice. Rent is $1500 so this works out to be $75 the first day and $45 each day thereafter up to the cap of $300.

First off, check your local laws. MANY areas have restrictions on late fees. They may also have restrictions on what day you can start to collect a late fee. 

Whenever you insert a new clause into your lease, you need to think about how it would look to a judge if it is ever challenged. Are you looking to motivate a tenant to follow the terms of the lease or you are trying to punish or profit off every little mistake? 

10% is extremely steep. The late fee should be a "that sucks" moment for the tenant. I'll pay on time because paying the late fee sucks. It should not be "screw him, I'm not paying that" amount where a tenant just refuses to pay it. 

 I typically include a late fee of $35 if rent is not received by the 5th day. I then charge an additional $10 per day every day after that. I feel that is enough motivation for a tenant to pay on time and also a justifiable amount if it ever gets challenged in court. 

I need to up my game. I only charge a $50 late fee after the 10th (rent due on the 5th). I average 2 or 3 late payments every month. I consider it “date money” I use on my wife. Everyone always ends up paying so I don’t stress out about it. I almost look forward to the late fees. lol

@Codey Yingling Like most others already mentioned, I would check your local laws to see if they have any restrictions set on the amount that you can charge for late fees. 

When it comes to enforcement, I would recommend finding yourself a good property management software. Ours is a big help with late fee enforcement as the tenants invoices have late fees added to them as soon as they're late. 

Michigan has no Late Fee caps, but we've had several judges throw out late fees or reduce them.

We have a 5% late fee due after grace period, with a 10% per diem after that.

My first thought was, "wow that is steep!" Obviously, I am not familiar with local laws, etc, but yeah, it seems high. I would go with one or the other, but if they reach the cap and have to pay $300 late fee, that seems excessive. 

As others have mentioned, check your state and city laws to see if there are any limits on the amount or percentage that can be charged. We charge a late fee if rent is not paid by the 5th of the month and the fee is a percent of the outstanding balance due. All of this is in the lease so there is no confusion if a late fee needs to be charged. We use a software program that helps manage rent payments and it will automatically charge the late fee if rent has not been collected. In general a late fee is there to encourage on-time rent payments.