Tip #16

Forgive a Late Fee Once, but Only Once

Written on November 14, 2012 by , updated on June 8, 2014

forgive-late-fees-onceMy lease is very strict regarding late fees.

I believe late fees are the “muscle” that encourage on-time rent payments. Ever since I moved to collecting online rent payments, I haven’t had a problem with late rent.

If my tenants miss the rent due date, their account is assigned a late fee of 5% automatically.

When this happens, I usually get an email from them saying they are “so sorry” and it will “never happen again”.

Most of the time, I forgive the late fee the first time, even though the lease does not require me to do so. Then I tell them that I will forgive the late fee “just this once”, and that next time they will have to pay the fee in full.

This usually builds a good relationship with them. If they are ever late again, I do enforce the late fee – which they are usually okay with at this point – because they’ve been warned (and know it).

The reality is that good tenants might slip up once, but bad tenants will constantly be late on rent. If they are a good tenant, they deserve a break. If they are bad tenants, you’re going to make a killing in late fees – so it’s not that big of a deal to forgive the first late fee.

photo credit: bubbo.etsy.com via cc
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10 CommentsLeave a Comment

  • Chuck Straub

    I’m interested in your discussions

    • Lucas Hall

      Hi Chuck

      It’s nice to meet you. Feel free to ask a question here, or chime in on any other article that has an active discussion.

      You can stay up to date on all new articles on Landlordology by joining the newsletter. http://www.landlordology.com/newsletter

      • Oksana

        Thank you for a great article Lucas!
        I m closing on my 1st investment property and looking forward to becoming a landlord. While doing the research I ve stumbled upon Cozy and it seems like a great platform that can make the landlord’s life a whole a lot easier. I was wondering if the Cozy’s online payment system allows for setting up a certain price (I was thinking of $25 discount) if the rent payment is made by the 1st of the month, then regular rent if paid by the 5th and 5% late fee if paid after the 5th?
        I just thought that giving a bit of discount for timely payment could be a great motivator :)

        • Lucas Hall

          Hi Oksana,

          Thanks for your comment and CONGRATULATIONS on your new property!!! Welcome to the club :)

          Cozy is a great platform, and I love using it for my own properties.

          Though “early payment” discounts sound like a good idea, they usually come back to bite you.

          In my opinion, the most common incentive is an “Early Payment Discount,” not to be confused with an “On Time Discount.” I believe that a landlord or manager should never discount the rent if a renter barely pays on time, which typically means the last possible day. A small discount, however, might be in order if the resident is able to pay 10 or even 15 days early.

          Unfortunately, discounts like this can also be construed to be “late fees in disguise,” something which courts are quite familiar with. For example, if the contractual price of the rental is $1,000/month, but you reduce it to $850/month if the tenant pays on time, then the 15 percent difference could be considered an excessive late fee, provided the tenant fails to pay rent on time. A judge is likely to view this discount as an unfair late fee, and will rule in favor of the tenant.

          My suggestion is to have a single rent price, and a hefty late fee (I usually stay around 5%). Further, don’t allow “grace periods” unless you are forced to by your state laws. http://www.landlordology.com/state-laws/

          To my surprise, the “early discount” is not that much of an incentive. Tenants still pay at the last possible day. It’s just better to keep your accounting simple, and force the tenant to pay with automatic withdraws (like Cozy does). Then, assign late fees if necessary. It’s worth mentioning that since I switched to Cozy, I have not had a single late payment.

          Further, here’s an article if you want to get fancy with late fees: http://www.landlordology.com/daily-late-fees/

          Good luck and Congrats again!

          • Oksana

            Thanks a lot for your response and very useful tips!
            I love your “KISS” approach to it. I recently went to the library in an attempt to do the research on the whole “landlord thing”, left me feeling all confused and a bit overwhelmed, all those books offer just too much information, most of it is unnecessary. Reading you Onboarding guide now and loving it – very simple and to the point.
            Do you have a leasing agreement that specifies the online automated drawing requirement for rent?

          • Lucas Hall

            Hi Oksana

            I’m not a lawyer, so please don’t take this as legal advice. Here’s what I use, but please have your own attorney review it.

            Landlord requires that automatic, recurring rent installments be paid through COZY SERVICES LTD (https://cozy.co) – a secure payment processing website approved by the Landlord. Landlord reserves the right to discontinue this online payment service and require at any time that Tenant(s) pay all rent and other sums by certified check, money order, personal check, or other method, following the same schedule and due dates. No personal check from a person who is not a Tenant or approved occupant will be accepted.

  • Oksana

    Thanks a lot Lucas!
    How long does it take on average for the Cozy online payments to process?
    Im getting ready to start setting up a property profile on Cozy. Im sure I ll have a few questions along the way as well

    • Lucas Hall

      Hi Oksana,

      Cozy processes payments via the national ACH banking network, which takes 4-6 days to show up in your bank account. Here’s a great explanation: https://cozy.co/ach-explained/

      Any company who processes payments via ACH will have approx. the same transfer times. It would take a few days for a check to clear anyway, so it’s not that different.

      If you have any more questions, feel free to read through the support docs: http://support.cozy.co, or contact our support team via email: support@cozy.co.

      I’m glad you’re trying Cozy! I use it for my properties and love it!

  • Lorena singh Escalante

    Seems fair but how much interest is that really

  • Gabriel

    Lucas,

    Excellent posts here, very informative. I would like to know what do you use for the accounting part of the rental as well as lease, maintenance records?

    I found Tenantcloud but comparing with Cozy, Cozy only does payments while TC does kinda everything. What’s your recommendation?

    Thanks.

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