Late fees: who should get these?

Question

Hi friends-

Wanted a little sanity check here. Tenants in a triplex that I own are late on rent and get charged a small ($50) late fee per their lease agreement.

In your experience, who gets this late fee??

My Property Manager is saying they get it. I feel like I should get it since I'm carrying the financial burden of the property and the delayed rent means lost revenue for me and not my property manager. At the very least, it feels reasonable to split it.

What has you experience been with late fees and/or what's industry-standard?

thanks!

Andrew West · Answer

Thanks all for your replies and insights!

It's fascinating to see the diversity of responses and that there are equal amounts of perspectives on both sides.

As an update, I engaged my property manager in a discussion about this, and they were able to outline their process for me that happens behind-the-scenes as soon as a tenant misses a rent payment. They put a lot of time (and sometimes money) into ensuring that the rent is collected and the tenant doesn't get too far behind. This is a class C property which is makes sense would require this amount of follow up. I feel quite comfortable knowing where this late fee is going and that my PM is advocating on my behalf to get the rent paid.

Nathan Gesner · Answer

Your management agreement isn't vague at all. It clearly says the PM keeps the monthly late fees. You could argue their language isn't the greatest (e.g. "incurred or paid by") but I think the intent is pretty clear.

There are different ways to look at this but it's too late. You were given a contract to review, you signed it, and now you are stuck. It's important to know what you are signing. I recommend you read the rest of it carefully to understand what else you agreed to.

This is not an uncommon charge for Property Managers. They "incur" additional work when a tenant fails to pay on time, so the late fee is charged by - and retained by - the person doing the additional work to collect. It is increasingly common, particularly among professional managers, to retain the late fee as compensation for the additional work involved. Unlike a lot of amateur Landlords, I will never see late fees as a good method of increasing revenue. Late fees are an indication of a problem; so I keep them to a minimum. I have 400 rentals and last month we had seven (7) renters pay late. Would you rather have an extra $50 a month and run the risk of bigger problems, or would you rather have a PM that works hard to ensure you get paid on time and have fewer problems?

Jacob St. Martin · Answer

based on that wording to me it sounds like you have to give them the late fee. I think that your only option here is to find a different property manager that doesn't have this in their contract or negotiate with them to remove this from your contract but both of those would be for the future not for this instance

Richard F. · Answer

Aloha,

They are treated as rental income and PM is paid the same percentage fee as on the rent, unless the Management Agreement states otherwise. FWIW, the PM also has expense in dealing with the late fee, including time spent sending additional notices, and contacting the tenant by other means; perhaps providing an attorney with copies to start a legal process; and the multiple calls/emails from client asking where is their rent?

Billy Daniel · Answer

Your contract should outline how those fees are split up between you and PM.  I think they are all a little different.  We split any fees (late fees, returned checks, etc...) 50/50 with the PM.  I like it this way because those circumstances are an inconvenience to both parties.

Suzanne Player · Answer

You probably already checked, but does your contract give the property manager the late fees?  Does it address it at all?

When does your contract renew?  Regardless, you can shop around in your area to see what other property managers are putting (or trying to put) in their contracts.  I would be surprised if landlords were giving the late fee away - when the tenant doesn't pay all their rent, does the property manager make up the difference?  It sounds like the property manager is trying to have it both ways.

Jacob St. Martin · Answer

I would second Suzanne's reply and add that if your property manager is being really stubborn about it maybe you can work something out with them and they get to take a cut like they normally do out of the gross rent (something like 8-10%). However, if you property manager is willing to cause tension in their relationship with you over a $50 late fee it might be time to find a new property manager.

Drew Sygit · Answer

@Andrew West many PMC's keep 100% of Late Fees under the premis that it costs them extra time & thus money, to chase tenants to get their payments.

Of course, then owners counter that the PMC should have picked a better tenant - but that isn't necessarily fair as "life happens" to the best of tenants and PMC's have no ownership in the property.

Both parties are affected, so in our opinion there should be a split.

But, it's whatever you negotiate.

Theresa Harris · Answer

I would think it should be split.  The PM has a bit of extra work to get it, but you are also on the hook waiting for the rent.

Late fees: who should get these?

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