Tip #53

Charge a Hefty, but Legal, Late Fee

Written on June 18, 2015 by

Late Fees By StateI believe that late fees provide the only real motivation for tenants to pay rent on time.

While some landlords mess around with early payment rewards to entice tenants to pay on time, I believe nothing works as well as a hefty (but legal) late fee.

Be Reasonable

My state doesn’t have a statute on late fees, therefore I’m only responsible for ensuring they are “reasonable” – which is completely subjective.

As such, I charge different one-time late fees, depending on the rent amount:

  • 10% if the rent amount is less than a $1,000,
  • 7.5% if the rent is between $1,000-$2500, and
  • 5% if the rent is over $2,500.

Some lawyers will tell you that anything over 5% will get thrown out in court, but I would argue that a $30 late fee on $600 in rent, does not motivate even the poorest of tenants. They will still pay you whenever they feel like it.

Related: Daily Late Fees Provide Motivation to Pay Rent Quickly

You Won’t Get Rich

My goal is not to actually collect late fees – but rather to motivate my tenants to pay on time.

The cost of receiving rent late is far greater than the few hundred dollars you’ll make by trying to collect small late fees.

Whatever amount you choose, make sure that it’s written and agreed to in the lease.

You can’t assign a late fee, no matter how small, if it’s not in the lease.

Late Fees & Grace Periods by State

State regulations vary greatly on this topic, so it’s imperative that you learn and abide by your state laws.

According to my research (though I’m not a lawyer), only 15 states regulate grace periods and/or late fees. Please click on the links to the actual statutes, to ensure accuracy of the data.

StateGrace PeriodLate FeesReference
Arkansas5 Days-A.C.A. § 18-17-701(b)
California-Must be in a written lease and be reasonable.CA Landlord/Tenant Handbook
Connecticut9 Days-CT Gen Stat § 47a-15a (2013)
Iowa-Agreements less than $700/mo, a max $12 per day or $60 per month. For agreements more than $700/mo, a max $20 per day or $100 per month.Iowa Code Ann. 562A.9(4)
Maine15 DaysMaximum 4% of rentMe. Rev. Stat. Ann. tit. 14 §6028
Maryland-Maximum 5% of rentMd. REAL PROPERTY Code Ann. § 8-208 (2014)
Massachusetts30 Days-MGL c.186 § 15B(1)(c))
Nevada-Must be in a written leaseNRS 118A.200
New Jersey5 Days for protected classes (senior citizens)-N.J.S.A. 2A:42-6.1
New Mexico-Maximum 10% of rent and be in a written leaseN.M. Stat. Ann. § 47-8-15(D)
North Carolina5 DaysMaximum $15 or 5%, whichever is greaterNCGS § 42-46(a)(1)
Oregon4 DaysMust be in a written lease and be reasonable, and may be a flat fee, a daily fee of no more than 6% of the flat fee, or no more than 5% of the total rent for each succeeding 5-day period or portion thereof of the rental period, until rent is paid in full.Or. Rev. Stat. § 90.260(1)(2)
Tennessee5 DaysMaximum 10% of the past due amountTenn. Code Ann. § 66-28-201(d)
Texas1 DayMust be in a written lease and be reasonableTex. Prop. Code Ann. §§ 92.019(3)
All Other States--No Statutes
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