How do you enforce penalty fees?

Question

In the spirit of “training your tenants,” how do you enforce when fees are applied due to late rent, non-compliance fees, etc. You add a fee to the monthly rent, but how do you enforce their payment? Or you bill the fees separately? And how do you enforce their payment if the tenant simply ignores it and pays the rent amount only?

Thank you

Mitch Messer · Answer

Hi @Christopher Davis and welcome to BiggerPockets!

Our lease agreement clearly states that funds paid by the tenant will be applied to outstanding non-compliance fees FIRST, and then whatever is left will be applied to unpaid rent.

So, for example, let's say rent is $1000 (due on the 25th) and our late fee is $10/day until paid. On the 28th if the tenant rolls up and pays $1000, that will be processed as $30 in late fees and $970 in rent, meaning they are still owing $30 in rent. And, since  late fees continue to accrue until they are current, tomorrow they will owe $40 ($30 in rent plus $10 in late fees.)

Jeremy Roberts · Answer

@Christopher Davis I agree with Mitch Messer and apply my fees the same way. Consult your state's landlord/tenant act.

Greg M. · Answer

In theory, what @Mitch Messer says can work, but there are issues with this. Some states/cities require the payment to be applied to rent first. Even if they don't, a court may find a $10 a day late fee on a $30 balance as unacceptable. Doing this is something that is going to be very location specific. Your most likely outcome to collect fees is to non-renew and assuming your lease allows it, take any outstanding fees out of the security deposit.

Christopher Davis · Answer

Interesting, I never knew that is how it is handled. So when late fees accrue and they only pay the $1,000, and you deduct the $30 late fees, so they really only paid $970 rent. Then you tack on the $30 to the next month rent? What if they only pay $1,000 again? Technically they owe $1030 at this point.

Christopher Davis · Answer

Thank you all for the replies. It sounds like there are a number of ways to deal with this, some dependent on state tenant/landlord laws. Not so black & white, although with the right process and/or software, hopefully a smooth process. Probably depends on the quality of the tenant as well.

Anthony Rosa · Answer

I once had and eviction and as my attorney was going through non-payments, late payments, etc.. the judge stepped in and asked "how do you handle late payments".  The attorney explained that there is a 5 day grace period and then went over the the late fee schedule.  The judge then asked "How long is your lenders grace period with mortgage payments".  The attorney replied "We have a 15 day grace period" and the judge said that "we have no right to profit from late fees prior to 15 days"....Imagine that BS!!..NY is tenant friendly to the max...Minimum 3 month to do an eviction and that's only if there are no tenant sob stories.

Dennis M. · Answer

I simply tell them “ your late pay me an extra 50 bucks now “  then I put my cash in my pocket and drive away . Not rocket surgery here

Jason D. · Answer

@Christopher Davis I use cozy, and it automatically adds the late fee on the 5th. If rent isnt paid in full, I would start the eviction process.

Sam Shueh · Answer

The landlord also needs to realize the owners have their payment days that need to match the landlord. Majority of renters live on check to check with little savings. If they always pay on time it is just as cheap to own than rent.

Want to reinforce try letters or renters with savings.

Brande Smith · Answer

@Christopher Davis Simple.  You don’t accept the rent payment without the late fee. Our online portal won’t accept rent after midnight on the 4th. Tenants have to bring in the rent and late fee. No exceptions.

How do you enforce penalty fees?

Most Popular Reply