Do you charge a late fee?

20 Replies

LA landlords, do you charge a late fee?

I'm about to list my first rental in LA (the other half of the duplex I'm house-hacking), and I don't know whether to charge a fee for late rent.

If so, how much do you charge? Rent on this unit will be $4-5k.

Thanks!

@Jonathan Schwartz I do charge a $50 late fee on my properties. I own properties in Berwyn, Cicero and Lyons, IL, and I charge $50 for my late fee. I think it is an important tool to "train" your tenants so that they prioritize your bill. With that being said, I typically will waive it the first time as a courtesy if I feel someone has been a good tenant up to that point. 

@Jonathan Schwartz do yourself a favor and charge a daily late fee. Don’t just charge $50 or $100 flat..because every day matters.

I charge $50 on the 4th and $5 every day after that.

Doing so ensures they pay it quicker rather than later.

I charge $75 and the rent is $1000.  State law says it has to be 10% or less of the monthly rent.

We give our tenants a discount to take care of the normal property maintenance. When they pay late, they lose the $100 discount and they get a 10% fee on top of that.

Not a LA land lord, but yes I always charge a late fee.  $25 the first day it's late + $5 per day thereafter.  This is on a $600 rent.

Late fees have to "hurt" or they do not encourage timely payment.  On a $4000 rental, does $100 "hurt?"  Percentage wise, my late fee (4.1%) hurts a lot worse that yours would at $100 (2%-2.5%) on a $4000-$5000 rental.  Of course you have to abide by state and local laws, as well as whatever judges in your area think is "fair" if it ever goes to court, so my first goal would be to learn the law on late fees inside and out.  What's the max you can charge?  Then bounce that off a handful of other reputable local investors to see what is customary in your market and also find out what the local judges will allow.  

One other thing: consider bypassing late fees altogether with auto-debit.  You TAKE the money vs. waiting for the tenant to decide to get around to paying you.  Still have late fees in your lease in case the draft on their account bounces (and add a bounce fee!), but by and large since I have started auto-debiting via my bank's ACH service, they always pay on time.  We line up the due date with their pay date and "Ta-Da!"...there's money!

@Jonathan Schwartz. I would always charge a late fee and make sure if you do you always charge the same amount and to everybody so you don’t get sued for treating tenants differently and that way people going in know the policy so if they are late their is no argument or confusion on the tenants part.

Yes! I've had to utilize the late fee more than a handful of times. I usually do around $100 for a unit that rents for $3000. Same with bounced checks.

@Jonathan Schwartz

Absolutely, every tenant (unit), every time, with very few exceptions. I charge between $50 and $75 for late fees on my Eastside properties and a market appropriate rate in my OOS. Here's why... 

But first, the amount you charge and when, MUST be in your lease. And for the lease to be enforceable, you must follow it as well. 

You must manage your tenants. By charging a late fee, you set the tone to your tenants that paying rent on time is a priority. If you don't collect a late fee, you are setting the tone for your tenants to manage up, and that due on the 1st doesn't really mean on the 1st. They will/can find other things to spend the money on because rent has been pushed/fallen on the priority list. 

You also need to charge for bounced checks. I take ACH only. Your choice to charge for insufficient ACH funds - whether you're charged or not (Im not and I don't), but charge a late fee. 

As mentioned, you can also charge additional fees each day late past the 3rd day of the month, but only up to the 5th day. Because by the 5th day you should be issuing a 3 day Pay or Quit notice. Which is the last step before filing an unlawful detainer. 

If you run into a situation you need to evict someone, it's imperative you follow the process of law and within your lease. If you charge arbitrarily or only ask for it on random occasions past the 3rd just because you feel like it, all while your lease says "late after midnight on the 3rd day" wont look good to a judge. It will weaken your case if you need to ever go down that route. 

Also you need to get paid on time because they bank wants their money on time. 

Below is not according to law and you need to season yourself for this

On the other hand, I absolutely agree with working with a good tenant who has had a good rental history with me but has had an unexpected cost, something short term, come up. They need to come to me before rent is due. It also needs to be something short term or have a resolution in view. No reason to kick someone when they are down. If they had something come up this one time, up to you to forgive and move on. This is not in the lease and I don't tell anyone this before hand. However, if the tenant is chronically late and just irresponsible, they get a late fee until they pay on time.  They need to straighten their finances out and live within their means, even if that means moving out. If something comes up with a good tenant that might affect them for months, you might expect there to be issues with rent for months to come. You can either set up a payment plan to keep them and yourself current - set expectations and consequences if they don't deliver. Or you can let them out of the lease and refund the remainder of the deposit, or hold it for early termination - last months rent. Be careful with payment plans. This is up to you and you might have to go with your gut or make a hard decision. Because, if you take payments and ultimately have to evict, you could run into issues. Learn the rent control laws, one misstep could hurt you. In a good rental market you should not have to make long term concessions that could put you in the hole and backfire. I'm just mentioning it so you get the frame of thought. 

Manage your tenants, everyone in LA knows when rent is due and expects a late fee if not paid by midnight on the 3rd day of the month 

I'm here if you have any questions or thoughts 

Absolutely! You must place a late fee on your lease agreements and it should have a daily late fee. Just make sure any and all late fees are within the legal limit for your state.

@Jonathan Schwartz I would! $50-$100 is fair. Late fee is important to show tenant that you are not messing around when it comes to late payments. The bank has no hesitation charging you a late fee for your mortgage and you shouldn't either. 

Originally posted by @Lynnette E. :

I charge $75 and the rent is $1000.  State law says it has to be 10% or less of the monthly rent.

Not sure about your state but in the original poster’s state (California) there is no state law on the books that says it has to be 10% or less, or that specifies any percentage at all for late fees. Just didn’t want him thinking 10% of the rent ($4000) would be okay because it likely may not. 

For the original poster, here’s a good article that talks about late fees in California: 

http://www.fastevictionservice.com/blog/late-rent-fees-california-how-much-can-landlords-charge/

Here’s an excerpt on point from this article:

How much can you charge for a late fee? There is no monetary value limit on how much you could charge, but California state law implies that you can only charge a “reasonable estimate of the amount that the lateness of the payment will cost the landlord.”

For what it’s worth, I charge 5% of the rent for my late fees in California, and courts have typically found that amount to be reasonable. 

Great replies!

Hell YES! Always charge a late fee!

For that amount of rent, at least$100...but, it depends, do you want the extra income from late fees, make it on the lower side so people will use it more often, or if you want it to be punitive and discourage people from paying late, make it a larger amount like $250.

Double check and make sure are you within any legal limits for your state, county and municipality.

Originally posted by @Kyle J. :
Originally posted by @Lynnette E.:

I charge $75 and the rent is $1000.  State law says it has to be 10% or less of the monthly rent.

Not sure about your state but in the original poster’s state (California) there is no state law on the books that says it has to be 10% or less, or that specifies any percentage at all for late fees. Just didn’t want him thinking 10% of the rent ($4000) would be okay because it likely may not. 

For the original poster, here’s a good article that talks about late fees in California: 

http://www.fastevictionservice.com/blog/late-rent-fees-california-how-much-can-landlords-charge/

Here’s an excerpt on point from this article:

How much can you charge for a late fee? There is no monetary value limit on how much you could charge, but California state law implies that you can only charge a “reasonable estimate of the amount that the lateness of the payment will cost the landlord.”

For what it’s worth, I charge 5% of the rent for my late fees in California, and courts have typically found that amount to be reasonable. 

 The state law I was referring to is where my property is. I was saying that I was below the max allowed in my state.  Some posters said they always charge the max allowed.