Tip #54

Don’t Allow a Grace Period Unless Required by Law

Written on June 22, 2015 by

Grace KellyWhile 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

Wonka - good day sir

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!”

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.

If they don’t the due date, the consequences are clearly defined in the lease as one-time fees, daily late fees, and even termination notices.

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.

Related: The Landlord’s Guide to Rent Collection

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.

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-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
All Other States--No Statutes
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17 CommentsLeave a Comment

  • Marina

    Thank you for gathering all that information. The article is great and the supporting information is priceless.

  • Kara Marx

    Hi Lucas,
    I believe AZ statue has been revised and the information below is current. Correct me if I’m wrong.
    Kindly,
    Kara

    33-1414. Prohibited provisions in rental agreements; late payment penalty
    C. A landlord may charge a penalty fee of not to exceed five dollars per day from the due date of the rent for late payment of rent if the payment is not remitted by the sixth day from the due date.

    Rent Grace Period: 5 days (Ariz. Rev. Stat. Ann. §§ 33-1414(A4))

  • William Dorough

    Lucas, very useful information. Many tenants often think paying the rent late is not a problem as long as they make a payment within a grace period. I believe building a trusting relationship with a tenant is very important, but it is also important to keep it professional. This article provides an example of how one can keep professional relationship.

    William

  • Kyle Braun

    I believe the Arizona 5 day grace period only applied to mobile home parks, not residential. Is that accurate?

  • George Lambert

    Great points on grace periods, and I love the videos you inserted. Late fees can discourage tenants who are trying to take advantage of you. But I’ve found that sending monthly statements the last week of the month and offering direct deposits for rent has helped me the most. A gift certificate to the local pizza joint every few months as a reward for early payments has helped, too.

    George Lambert
    Author, What You Must Know BEFORE Becoming a Greedy Landlord. How to build a portfolio of investment properties for an income that lasts a lifetime.

    • Lucas Hall

      Hi George!

      Thanks for the feedback and I’m glad you enjoyed the article. I completely agree with offering direct or online rent payment options. I use Cozy (www.cozy.co) which sends a reminder automatically to my tenants 3 days before rent is due, and let’s them set up recurring automatic payments too. It’s pretty awesome.

      Although a pizza gift card sounds pretty motivating too :)

  • Alberto Cabrera

    The grace period is establish because not everyone gets paid in a timely basis. The 1st does not always fall on a business day or gets wrapped up within a holiday were banks are closed and direct deposits do not go through before all the time.

    Tenants do not get priority for broken appliances or ac/heat units that do not blow air. Usually, they do not get immediate attention or have to wait for weeks. They also do not get to deduct part of the rent for the inconvenience. It’s really about communication, understanding and patience. If a tenant can do it, i am sure a landlord can too.

    Honestly, if a person’s true intention is not to pay their rent. You won;t be getting it by the 5th anyway

  • Rob Thomsen

    Hey Lucas, great article. Maybe you can petition the state associations of Realtors to rethink their boilerplate. The main reason there are still grace periods is probably because the standard contracts we Realtors are given has them baked in. These boilerplate contracts are also readily available to the landlord community. There should at least be an easy way for a Realtor to change the presumption without having to mark up the boilerplate and seem like we’re taking out the standard, “reasonable,” approach.

  • Bob

    What a heartless greedy asshole.

  • Fay

    I have a 3-day grace late period in my lease – yet to use it. The most 1or 2days I moved in on the fourth and offered to prorate rate the rent so I could pay on the first he wanted a full months rent- plus 350 nonrefundable cleaning deposit, and deposit. I issued a separate check for the deposit. He agreed to hold it a couple days. He cashed all three checks at the same time. I bring his rent to him ( lives right down the street)- but this is a problem if the weather is bad as I am in a wheelchair – then I have him pick it up. Before I started bringing it to him he would just walk in unannounced. Most of us have 10-15 days on the mortgage.

  • Jennifer

    We own a commercial property, first time landlords. We currently have our grace period at 7 days. Rent is due the 15th of the month. My question is..they are due to sign another contract this January. Can we get rid of the grace period? The first year was because their business is new. The second year we didn’t change it because they only took advantage of it once or twice. This year it has been taken advantage of every month. It’s a tire shop.

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