How are Colorado Landlords recouping/collecting late fees?

Question

We are now into a couple of years living with "SB21-173, Concerning Rights Related to Residential Rental Agreements" and as a landlord I wanted to see how others are actually recouping/collecting any late fees from your renters? Are you sending a separate invoice to renters? Are you waiting until the end of the lease term to recoup/collect late fees from the deposit? Please share your process, thanks.

Spencer Abeyta · Answer

When a tenant pays rent they would have to notify us what they want the money applied towards. If they do not tell us then it defaults to the PMs policy.

You would be able to offer a higher rental rate with a discount based on when rent is paid but we have not done that at my company.

Colorado also has a restriction where you can only increase rent on a tenant once in a 365 period. It is up to lawyers interpretation if a month to month lease fee is a rental increase or not.

Bill B. · Answer

Can you charge $100 more rent with a $100 discount for rent being paid before the 1st? (Say the last day of the previous month.)

If not, how about requiring EFT payments scheduled for the first? (So tenant would either have funds removed or face an overdraft fee from bank encouraging them to insure your transfer goes through.

If not, I would switch to MTM leases, maybe from the start or after 6 months, your call. Then you could increase the rent $50/$100/mo (with proper notice) every time a late fee applies. Worst case switch to 6 month leases and sign a new lease every 6 months with a new property inspection and a new security deposit requirement. (Subtracting any damage and any late fees.)

Otherwise you’re stuck with higher security deposit requirements, the small claims route, or even stricter screening. Good luck.

I don’t understand how they think these laws help tenants.

John Ramos · Answer

Colorado Senate Bill 21-173 was a quasi omnibus renters rights bill that limited the amount of late fees to $50 or 5% of monthly rent, whichever is greater, late fee cannot be charged until 8th calendar day of month (must give 7 calendar days to pay rent), cannot be deemed as additional rent for next monthly rent payment, cannot be deducted from rent payments, cannot be charged interest on and cannot be used as a reason to evict a tenant.

This leaves landlords three options, issue an invoice to demand payment, if issued invoice is not paid then bring tenant to small claims court to collect OR deduct all legitimate late fees at end of lease period from the deposit.  So, I wanted to see what other landlords are doing to collect late fees and which avenue they are using.

Nathan Gesner · Answer

You can't evict them for failing to pay the late fee. However, there are a couple possible options:

1. My lease says all payments are applied to non-rent charges first, oldest to newest, and then to rent last. Say the tenant owes $1,000 rent, $100 utility, and $50 late fee. If they pay me $1,000 then I apply it to the late fee first, then the utility, then the rent. This leaves them $150 short on rent and I can file eviction. Talk to an attorney to see if that's an option.

2. The other option is to allow the late fees to accrue, then deduct them from the deposit upon termination. I would not tell the tenant you intend to do this because they may choose to abuse it. Talk to an attorney.

John Ramos · Answer

Thanks Spencer, my understanding was that we could not deduct late fees from their rent payments, but it sounds like the tenant would first need to notify us in writing that they do not want late fees being deducted from the rent, is that correct?

Spencer Abeyta · Answer

The limit on late fees really hurts the 'penalty' aspect of PMs to encourage tenants to pay on time. We manage a little over 500 doors and so far we have not seen any tenants pay rent but not pay the late fee. We also apply payments towards late fees, posting fees, or utility bill backs before rent. You have to notify the tenants that they have incurred a late fee. We send out emails when a late fee in incurred.

Based on the legislation, if push came to shove, the tenant could tell us in writing that they want the payment to be applied to rent and carry a balance of increasing late fees. This would be a very rare situation but it could happen. If this situation happened and then the tenants moved out you would be able to take the late fees out of the security deposit.

In our company, late fees go to the PM. For example say there is a $1000 deposit, $750 of repairs, and $500 of late fees. I think it would be the PMs responsibility to make sure the owner is covered before making profit for themselves. So we would pay the $750 for repairs to the owner, then charge the remaining $250 towards the late fees. From there, it would be up to the PM if they wanted to file a $250 collection or just count it off as a loss.

I would be happy to go into more depth about other changing legislation in Colorado if needed John!

Michael K Gallagher · Answer

Hey @John Ramos I'm not in the CO market, what did the SB regulation you are referencing above do and change?  I assume its specifically targeting late fees it seems?

How are Colorado Landlords recouping/collecting late fees?

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