Should I charge late fee on the first month?

21 Replies

Husband and I don't agree on whether or not we charge a late fee for the first time rent is due, let me know what you guys think.

We just had a lady move in on Feb 1st and this March 1st is the first time rent is due on the 1st. We required her to pay us via electronic transfer and have practiced the timing of it with her from her application fee and initial deposit. It takes about 3 days for the rent to deposit into our account from the day she initiates it so if she wanted rent to be paid on time, we should have already seen the first email letting us know she has initiated a deposit. We have not seen that yet so this is why I'm going to guess she is going to be late on her rent.

Today is Sat March.1st and still no email with deposit initiation. In the lease it states rent is due on the first. It's considered late on the 3rd and grounds for default on the 5th. When Monday comes it will be the March 3rd and I was saying if she doesn't pay by Monday night then we charge her the 10% late fee. My husband doesn't agree and says we should give her until Wed, the 5th.

I see his point where he doesn't want to get off on the wrong foot with the tenant since it's the first month of her paying rent and she's an brand new tenant. My point is, the lease says rent is due on the 1st late on the 3rd so I want it either on or before the first like the lease says and what we agreed on. I don't want this to continue happening and set the precedence that we don't enforce what is written in the lease and then have her think this is the way it is and she can do that in the future too with rent or other items. What do you guys think? Is there a way to remind her nicely rent is due on 1st and late on 3rd and we can kick your *** out of the house after the 5th?

Husband thinks first month we should give her more leeway since its the first time she is paying the full amount of rent electronically and then start implementing the 2nd month.

I say we practiced the electronic deposit already and she saw how long it takes for it to clear into our account so she should have her crap in order to pay first month's rent.

Here's the lease wording.
Tenant shall pay to Landlord a lease payment of $1200 per month on the first (1st of each month. Tenant will pay the monthly rent on or before the first day of each month during this Lease. Weekends and holidays do not delay or excuse Tenant’s obligation to timely pay rent.

LATE PAYMENTS. Tenant shall pay a late charge equal to 10% of amount owed for each payment that is not received by the third (3rd) of each month. Failure to pay any installment of rent, or additional fee when due is a default under this Lease.

If not paid within five (5) days after written notice by Landlord of non-payment and of intention to terminate this Lease, the Landlord may terminate this Lease, and unpaid rent for the entire remaining Lease Term shall become immediately due and payable.

Charge the late fees as indicated in [required by] your lease contract. I consider my leases to be a binding contract indicating what I am responsible for and what the tenant is responsible for. Not assessing the late fees tells your tenant she can pay whenever is convenient. I think this is as important, if not more important, in the first month of the lease term.

You should enforce whatever you have in writing. While this will not only send the message that she can't just do whatever she wants in the future, there is also a legal basis for this -- lookup "doctrine of laches."

The docrtine of laches basically says that if you fail to enforce the terms of a contract, you may implicitly be agreeing that the contract has changed, and may lose your right to enforce those terms in the future.

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Even though you have it stated in the lease that weekend and holidays cause no delay, is it possible that the electronic transfer is delayed due to the weekend (I.e. The banks fault, not the tenants)?

I would take a different approach.

If the 1st falls on a weekend or holiday, I don't do anything until the following business day. If the rent is not in the account on Monday end of business than by all means take necessary action.

I'm all for training tenants, but this is common practice in My world.

John

I have done this for 12 years with no problems.

(knock on wood)

My premise is you have "responsible" tenants that slip up from time to time.

I always give the tenant the benefit of the doubt and let the fee slide.

I "clearly" state that next time I will charge a fee and that has solved the problem. Generally speaking if you give your tenants a little respect and cut them some slack, It will come back to you ten fold.

They can make your life miserable but this way they actually go out of their way to be nice and then property ownership is tolerable. (this assumes you have good tenants)

Giving up a late fee from time to time is a small price to pay for having a harmonious relationship with your tenants.

Act human and you often get it back in return.

If they are bad tenants and always late etc, get rid of them and find good people.

Rational thought is best. I would just call and check in with the tenant and have an open discussion. Who knows why or why not you haven't received the email. My contracts are the rent is due on the 1st and late on the 5th. late on the 3rd is not really realistic. 15% of my tenants pay yearly, 80% pay by the 5th or 6th and 5% we have to call and check in. I always in force the late fee. It is actually nice collecting a late fees, extra revenue.

One thing I did start in my contracts was going away with the pet deposit. I now charge pet rent. $10 per month for cat or dog.

charge the fee. Your relationship with this tenant is at a crossroads with this right now. How you act in this first encounter will set the tone for the entire relationship.

You can either be seen as seen someone who will let things slide

or

Someone who takes no excuses.

Touch base on the 3rd, since it's the first month, after that definitely enforce. To be clear, the fact that your system takes three days is not the tenant's fault. They need to do their thing by the 3rd. I assume she does this online, as if she has to physically go somewhere to do it, or deliver it, the weekend does matter if that place is closed, regardless of what your lease may say. You sure a 10% late fee is legal there?

I will generally let the tenant know that I have decided to waive the fee this month but please remember that next month and from here on out there will be a late fee. I let them know that there are hickups along with way as we start the relationship and this is just the first. the big thing on this is that if you extend a bit of grace to them at the start farther down the road when you have a slip up on your end they are more likely to give you a bit as well. I think the key is to remember that this is a relationship you have with them and it is best to do all you can to start on the right foot.

Why not just give the tenant a quick call and make sure she is initiating the transfer today. A gentle nudge with a new tenant usually works...or she just might say like mine do sometimes, sorry but I'm getting paid late so I'll pay the late fee. You can do it in a nice way....I do it all the time. I do grant them some leeway. I had a tenant last month who had issues with stolen identity and some unauthorized transfers from his account....he was 3 weeks late with rent and didn't pay a late fee.....and mine is pretty steep.

Here's my late fee:

"LATE FEES: Time is of the essence. If the rent is not paid by the 1st day of the month, tenant shall pay a penalty of 10% of the monthly rent if the rent shall be paid by Resident to Management on or before the 10th, 15% if the monthly rent is paid on or before the 15th and 20% if paid on or before the 20th, plus a further penalty of $10.00 per day thereafter until the rent is paid shall be paid by Resident to Management as additional rent, due and payable each day. Each daily failure to pay such additional rent shall be a separate event of default. In the event any check given by Resident to Management is returned by the bank unpaid, Resident shall pay a $50.00 return check fee to Management as additional rent in addition to the aforementioned daily late fees, with all subsequent payments thereafter due and payable in certified funds."

As to latches - you should have some language in the lease that addresses waivers as a "one-time" waiver and also a severability clause in case a judge tosses out a particular provision in your lease:

"WAIVER: No failure of Management to enforce any term hereof shall be deemed a waiver, nor shall any acceptance of a partial payment of rent (or any payment marked "payment in full") be deemed a waiver of Management's right to the full amount thereof. No term, covenant or condition of this agreement may be waived by Management unless such waiver is in writing and signed by Management."

Hope it helps. I am usually very firm with tenants and they tend to respect that. We have a tenant who lost his job last month and I covered his rent for this month until he finds new work. With shared housing, it's a bit different and part of my model is creating the right "mood" in the house. The house with this tenant is 4 males sharing a home...it's pretty interesting as a major tv show just filmed us and this house for a documentary.....and these 4 get along like they've lived together for many years. Happy Investing!

Originally posted by @Jennifer H. :

Here's the lease wording.

Tenant shall pay to Landlord a lease payment of $1200 per month on the first (1st of each month. Tenant will pay the monthly rent on or before the first day of each month during this Lease. Weekends and holidays do not delay or excuse Tenant’s obligation to timely pay rent.

LATE PAYMENTS. Tenant shall pay a late charge equal to 10% of amount owed for each payment that is not received by the third (3rd) of each month. Failure to pay any installment of rent, or additional fee when due is a default under this Lease.

If not paid within five (5) days after written notice by Landlord of non-payment and of intention to terminate this Lease, the Landlord may terminate this Lease, and unpaid rent for the entire remaining Lease Term shall become immediately due and payable.

Jennifer,

First, whether you give someone a do-over on a screw up or intentional late payment is entirely up to you and your husband. But owning rentals is ultimately a people business. Things are less clinical than we would like some times. I'd definitely contact them on the 3rd if payment has not been received and would definitely follow the local laws on posting a pay or quit notice and getting the eviction process started.

However, if I were in your shoes, I'd get a lawyer to review my lease. The language there looks like it might be a diy effort. Some of it appears inconsistent and could be open to conflicting interpretations. With a contract, any contract, you want everything to be clear and unambiguous because any inconsistencies or fuzziness in the language would be ruled in favor of the tenant.

@Jennifer H.

A middle of the road tactic we frequently employ with our student tenants, if they drop the ball at the beginning of our relationship, is to strictly enforce the late fee - even on the first offence - but, once the late fee is paid, we tell the tenant if there are no further issues throughout the remainder of the lease we will either apply the late fee to their rent at renewal or refund it along with their security deposit.

This keeps the relationship with those who honestly made a mistake and, for those who make such conduct a habit, it is - to borrow from @Jeff Rabinowitz - a drop in the liquid fund ;-)

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It would be interesting to see if you could get that late fee enforced.

In my state, the law is silent on late fees. So in theory you can charge whatever you like, as long as it is in the lease. But what the court will actually enforce is something very, very different.

I forgot to mention this, check with your state laws to see if there are limits on NSF fees and late charges. You can usually google whatever your question is with the state and get a pretty good idea of what you can or can't do legally. I've never lost in court on the lease..except once and the judge was a friend which may have been why he dinged me a little. He ruled that the late fees has to be changed from a percentage (the old lease had 10% at 10 days, 15% at 15, etc) so I changed it. I won my case, made the change and moved along. Every state can be different so just check. I found out recently that GA has a $30 limit on NSF charges but mine has been at $50 for the past 15 years at least. I've meant to change it and did on the lease I signed yesterday. Always check with your local state laws to see what is permissible and it's not a bad idea to get legal review. I went to law school many years ago and often have an idiot for a client...but I hire the best when I do actually need a lawyer! Happy Investing!

@Richard C. - exactly and that's something we all forget. A ton of "law" is made at the bench by magistrate court judges which is what my friend did to me above. I think he did it instead of pulling himself from the case. Some judges take it easy on renters....some states like CA are waaay to tenant friendly...it truly depends on where you are.

My lease is a very tough landlord lease with a ton of "bite you" provisions if you're a bad tenant. I had a lawyer renter once who requested an hour to modify the lease. He gave me his revisions...I handed him a fresh copy of my lease and said here you go. He wasn't happy but he signed it. Having a tough lease can often keep a tenant in line knowing that it might cost them dearly to break the lease or create damages. I explain to every tenant that it is written for the worst possible tenant and everyone signs off on it.

I will admit that I skimmed through other responses, so I apologize for any repetition. In my state, if fees are considered unreasonable or one-sided, they are simply tossed out in court. Know the limit and stay within it to remain enforceable.

The portion of the written agreement that you quoted makes no mention of requiring electronic payments. In my state, if it isn't in writing, it doesn't mean anything. Assuming that it is elsewhere in the written agreement, it is customary that dates that fall on a weekend or holiday will be considered the next legal workday, in this instance, Monday.

Further expanding on that point, you stated that the electronic payment process takes 3 days. My guess would be that if tested in court, the date the transaction was initiated by the tenant would be considered the payment date, even if it takes 3 days to post to your account.

To summarize my opinion on this situation - think of it as a carrot and stick choice (like trying to get a horse to do what you want), try the carrot approach first, if that doesn't work, use the stick. Call the tenant, remind them that rent is due on the 1st and gently suggest that you are a landlord that stays on top of things such as this. Ask if they will be initiating payment before the end of Monday. If they say yes, then sit back and see if they do. If they push back and say no, or if they don't do what they say they will do on Monday, use the stick.

I enforce my late fees and make a fair amount of extra money every year as a result. I am also "real" about life. Friday was the end of the month and very likely payday for the tenant. If they were mailing the payment, it probably wouldn't be in the mail until Saturday. If it isn't in my mailbox by the 5th, then they are assessed a late fee. If I get it on the 6th and can see that it was mailed on the 1st (Saturday) or the 3rd (Monday), then I will likely back off on the late fee.

In short, both you AND your husband are right. If I had to take a guess, there is something that YOU don't like about this particular tenant. Figure out what that is and pay attention to it. It might be instinct. Enjoy while things are going well but don't hesitate to act if things turn the wrong way later down the road.

Sorry, didn't read all those replies.

For one, enforce your late fees from the start. Now is not the time to be lax. Six months from now if they've paid on time every month and they let you know they're going to be later than usual consider waiving the fee. Not now.

Second, chill. They're not even late, yet. I remember that feeling of panic if the rent didn't show up right on time. It may or may not, but don't get worried until something bad actually happens. If its not late until the fifth (based on what you write) you should expect payment on the 4th, not the first. I give a small discount, about 3%, if rent is in my hands on the 1st. I have tenants deposit it directly and I can see in on the bank web site just minutes after they make the deposit. I just had one text and say they couldn't pay until the 3rd. No problem, but no discount either. Its late for me on the 5th, too. I have a $25 late fee plus $5 every day after that and I do enforce that. I have had tenants that consistently paid late and paid late fees most months.

I also use an electronic payment system, and it does indeed take 3 business days to credit to my bank account. However, the system I use, erentpayment.com, sends me an email as soon as the tenant initiates payment or when the auto-debit occurs (depends how I have set it up). It also emails the tenant if the rent isn't paid by the first - a "reminder".

As far as getting off on the right foot, it seems your tenant isn't as concerned about that. Absolutely enforce the late fee. I discuss this with all tenants prior to signing the lease. We enforce late fees as of the 3rd, the 3 Day Pay or Quit gets posted on the 4th, and after that - the eviction filing. I have them initial the bottom of each page of the lease.

If a long term tenant has a decent track record, we won't post the Pay or Quit for about a week, but all tenants have paid the late fee. The lease states it's "additional rent", and we've explained what that means.

Some tenants pay a few days late every couple of months - we're fine with the extra money as long as they don't go beyond a few days. They also have to deposit the rent and late fees directly at the bank - not try to float another 3 days using erentpayment.com

CHARGE IT! heck yeah. Actually many states (like ohio) say that if you don't charge it you waive your rights to charge it.... So charge it now... And always... Be the " bad guy" . You're not a bad guy for enforcing the policy in the lease.

If you can't. Hire a PM that will they will do it and the money they collect for you in late fees will often times pay for their fee... So they will essentially work for "free" from your perspective (if you're someone that's not used to charging fees like late fees and other fees)

Good luck!

$120? That is a huge late fee. I can't imagine any judge near me upholding that. I have had judges cap my late fee at $50-$100 on a rent of ~$1,100. (Most of my leases specify a $50 late fee if rent has not been received by the 5th and then $10 per day thereafter. I sometimes assess $100 but I have only rarely assessed more. If a tenant is late more than 10 days multiple times I move to eviction. Receipt of the eviction paperwork either solves the problem or the eviction does.)

From what I read it seems that the tenant may have actually initiated their payment today but it will not be transferred to your account for 3 days. It may be wise to get a legal ruling on what constitutes payment. I would think if the tenant initiated the transaction on the first that they would be deemed to have paid on the first. It may be similar to a tenant paying with a check. If you receive a check on time but the bank places a hold on the funds hasn't the tenant paid on time even though you have not had access to the funds?

If the tenant actually paid today and you just haven't been notified by your electronic payment system you may be laying the groundwork for a troubled tenancy if you accuse them of being late right off the bat. Asking them if they paid is much gentler than accusing them of not paying if you are not sure what is actually true. You posted early this morning. At my posting there are still 6 1/2 hours left in March 1st.