While I adore Grace Kelly, I think grace periods for rent are not so flattering.
So why do we, as landlords, even allow grace periods?
I know, I know, some state laws mandate them, but generally speaking, the rest of the world doesn’t work that way.
If you’re two days late for a job interview, you won’t get the job – period. If you fail to pay your taxes by April 15th and don’t file an extension, you get a hefty fine. In the real world, there are severe consequences for being late!
In my opinion, grace periods only grant permission for a tenant to pay late.
The Truth About Grace Periods
Sadly, grace periods only give the tenant an excuse to deviate from the contract.
Grace periods allow the tenant to think that “a five-day grace period means rent is not really due until the fifth anyway.” Once they mentally go down that road, it’s hard to change their perspective. Trust me, it took me years to realize this.
Realistically, your tenants have all month to pay rent – so there is no reason why they must wait until the very last-minute, and thus, no reason why they should need a grace period.
Worse, grace periods only delay the late fee, which is the only real motivator to pay on-time.
My belief is that a landlord shouldn’t offer a grace period unless you are required to by law.
After all, the tenant signed a contract stating that rent would be paid by a certain date. I would be sending mixed messages by allowing them to pay on a different day.
An Obvious Red Flag
If I have an applicant who refuses to sign a lease because I don’t allow a grace period, and I am not required to by my state laws, then that renter most likely plans to utilize the grace period. Makes sense, right?
It’s an obvious red flag that they don’t take me, the contract, or the due date seriously.
If a potential renter is adamant about having a grace fee, it usually means that they don’t have good handle on their finances, or have irregular and unpredictable income streams. Both of which makes this renter a high risk for nonpayment and eviction situations.
No thank you. Good DAY, Sir!
“Come On, Have a Heart!”
Some people think I’m being too stern by not allowing a grace period.
Let me be clear, not having a grace period doesn’t prevent me from waiving late fees.
After all, “life” happens, and I need to be able to account for it. I generally try to look for the best in people, but I also realize that it’s easier to be lenient on a rule, rather than try to enforce a rule that never existed.
If a good tenant is late on rent, I almost always forgive the late fee once – but only once.
I’m a man of my word, and I expect others to be the same. When someone agrees to a rent due date, I expect them to meet that deadline. My mortgage payment doesn’t really care if their transmission dropped out.
Further, I also require my tenants to set up automatic rent payments with Cozy, so the chance of them “forgetting” to pay goes down to almost zero.
With that said, some tenant-friendly Judges might rule against you if you don’t have a grace period, even if there is no statutory requirement – but I think it’s worth the risk.
State Laws Vary
State regulations vary greatly on this topic, so it’s imperative that you learn and abide by your state laws.
According to my research (although I’m not a lawyer), only 15 states regulate grace periods and/or late fees. Please click on the statutes to ensure accuracy of the data.
|State||Grace Period||Late Fees||Reference|
|Arkansas||5 Days||-||A.C.A. § 18-17-701(b)|
|California||-||Must be in a written lease and be reasonable.||CA Landlord/Tenant Handbook|
|Connecticut||9 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)|
|Maine||15 Days||Maximum 4% of rent||Me. Rev. Stat. Ann. tit. 14 §6028|
|Maryland||-||Maximum 5% of rent||Md. REAL PROPERTY Code Ann. § 8-208 (2014)|
|Massachusetts||30 Days||-||MGL c.186 § 15B(1)(c))|
|Nevada||-||Must be in a written lease||NRS 118A.200|
|New Jersey||5 Days for protected classes||-||N.J.S.A. 2A:42-6.1|
|New Mexico||-||Maximum 10% of rent and be in a written lease||N.M. Stat. Ann. § 47-8-15(D)|
|North Carolina||5 Days||Maximum $15 or 5%, whichever is greater||NCGS § 42-46(a)(1)|
|Oregon||4 Days||Must 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)|
|Tennessee||5 Days||Maximum 10% of the past due amount||Tenn. Code Ann. § 66-28-201(d)|
|Texas||1 Day||Must be in a written lease and be reasonable||Tex. Prop. Code Ann. §§ 92.019|
|All Other States||-||-||No Statutes|