Late fees! What say you?

Question

I need a serious update on my late fees but I'm at a loss on what to charge.  Now I am lucky in that I only had one late rent payment last year and haven't had one since (knock on wood) but currently my late fee is only $40.  But I hear these big rental companies charging like $100 and a percentage everyday after.  I think there is a fine line of keeping your tenant up to date and them never catching up and it can create a never ending cycle and resentment.  But what say you?  Thanks.

Melanie P. · Answer

@Clinton Davis Please note in Tennessee late fees are capped at 10% of the past due rental amount and may not be imposed until after a five day grace period. If the last day of the grace period falls on a Sunday or legal holiday the fee cannot be imposed until the next day.

I'd suggest assessing 5% on Day 6 and then an additional $20 a day until you hit the cap.

Kerry Baird · Answer

I’m similar to you: I want a late fee that will be a nudge but not a punch.

Kerry Baird · Answer

@John Morgan, I love that idea!  Interesting that you have people who have chosen to pay late over long horizons.

Tenzapa Wakombe · Answer

Great question—and I think you’re spot-on about that fine line. I work with several investors and property owners, and I’ve seen a range of approaches.

$40 is on the lower side, especially compared to what larger property management companies charge. Many go with something like a $75–$100 flat fee after the grace period, plus a daily fee of 5–10% of the rent amount (capped) until it’s paid. That said, the goal isn’t to nickel-and-dime tenants—it’s to encourage on-time payments and set clear expectations.

Some owners I work with choose a reasonable flat fee (like $75) and skip the daily charges to keep things simple and avoid resentment. Others use a daily fee but give tenants a heads-up or reminder before it kicks in.

You’re already doing great with on-time rent history, so I’d say it’s more about having a consistent policy that aligns with your values and is enforceable in your local market.

If you’re in Tennessee or considering it (I saw Knoxville mentioned earlier), let me know—I can share what’s common and legally compliant in this area too.

Adam Bartomeo · Answer

We charge a $50 late fee to motivate the tenant to pay on time. We charge a $10/day fee to motivate them to pay ASAP.

John Morgan · Answer

I only charge a fixed amount of $75. It brings me an extra 8k/year of revenue that I don’t mind. I have several tenants that have been late for years. Not a big deal to me where some people stress over. They always pay late with the late fee so I’m good. If I charge more, I’ll probably have less late people. But I feel like $75 isn’t much and people are fine paying that. And I’ll take that extra 8k/year to take my wife out on dates. lol. That’s what I tell her, every time someone is late we go on a date with the $. Haha!

David Peschio · Answer

In Virginia, it's important to know that the law offers specific guidelines for late fees to ensure fairness for both landlords and tenants while still allowing landlords to encourage timely rent payments. Virginia law, specifically Va. Code § 55.1-1204(E), states that a landlord can only charge a late fee if it's clearly outlined in the written rental agreement. This fee cannot be more than either 10% of the periodic rent or 10% of any remaining balance due. Additionally, Virginia law requires landlords to provide a 5-day grace period before a late fee can be applied, meaning rent must be at least five days late before a fee is charged.  Remember that landlord-tenant laws can vary, and since you are in Tennessee, it's advisable to check the specific regulations in your local area to ensure compliance.

Because of these legal guidelines, many landlords in Virginia choose to implement a straightforward 10% flat late fee, as it is legally compliant. However, it's important to think about how this might affect your tenants. A significant late fee could potentially damage your relationship with them, especially if they are already facing financial challenges.To help maintain a positive balance, it's a good idea to make sure your tenants are fully aware of the late fee policy right from the start. Applying this policy consistently to all tenants is also crucial to avoid any perception of unfairness. Furthermore, consider being open to offering payment plans or additional grace periods for tenants who are experiencing genuine financial difficulties.  By prioritizing clear communication and offering flexible solutions when possible, you can work towards encouraging timely rent payments while also maintaining good relationships with your tenants.

David Peschio · Answer

I agree with Melanie's suggestion regarding the per diem option if it's legally permissible. I believe this approach encourages tenants to pay promptly once they are late, as it provides a clear incentive for them to do so. Without such a structure, there might be less motivation for tenants to prioritize payment.

Late fees! What say you?

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