People hate paying fees, whether they’re administrative fees, convenience fees, airline baggage fees—or late fees. For most people, paying fees feels unfair.
But late fees provide an incentive to pay the rent on time, and for good reason. When tenants pay rent late, not only is it inconvenient for you as a landlord, but it could disrupt your finances. You probably count on that money to pay your bills.
If you still aren’t collecting rent online, then you’re exposing yourself to additional rent collection issues. Tools like Cozy help keep tenants on track and paying on time. But you still might have to charge a late fee. When you have a valid reason for charging a late fee, your tenants might refuse to pay the extra money. What then?
Here’s what to do when your tenant won’t pay late fees.
1. Include a Late Fee Policy in Your Lease
Check the laws of your state to determine whether you’re restricted on how much of a late fee you can charge—or if you can even charge one—and how long you need to wait before you can start charging. Once you find out how to comply with your state’s laws, include the late policy in your lease. Otherwise, you can’t charge late fees at all.
You can’t just make up late fees after the fact.
While state laws vary, here are two guidelines that most states consider reasonable:
- Wait a few days before you start charging late fees.
- Keep the late fee at 5% (or below) the rental amount. For example, if rent is $1,500, the late fee shouldn’t be more than $75 for one month.
Here’s the late fee policy from my lease:
Tenant will pay Landlord a late charge if Tenant fails to pay the rent in full within three (3) days after the date it is due. The late charge will be $50, plus $5 for each additional day that the rent continues to be unpaid. The total late charge for any one month will not exceed $75. Landlord does not waive the right to insist on payment of the rent in full on the date it is due.
2. Have an ‘Allocation of Payments’ Clause in Your Lease
In addition to having a late fee clause in your lease, make it a term of the lease that any money you collect for rent for the next month will first go toward any unpaid fees from the prior month.
For example, say the rent is $1,500 a month, and your tenant paid rent late, accumulating $75 in late fees. They paid you only $1,500 instead of $1,575. Next month, your tenant pays on time, and pays $1,500. Because your lease clause states that unpaid late fees are paid first, you use the $1,500 to first pay the $75 from last month, and you apply the balance toward this month’s rent. Your tenant, therefore, would have paid you a partial rent payment of $1,425 for this month.
The reason for doing this? “It’s much easier to sue a tenant for unpaid rent than it is for an unpaid late fee,” says Lucas Hall, head of industry relations at Cozy and founder of Landlordology.
Here’s a clause Hall has in his lease:
ALLOCATION OF PAYMENTS. All payments and deposits will be allocated first to any outstanding balances other than the amount owed for rent. Any remaining monies will be allocated lastly to any rent balance.
3. Gently Remind Your Tenant
A tenant who “forgot” to pay the late fee probably falls under the same excuse category as “The dog ate my homework,” or “The check’s in the mail.” However, your tenant might really have forgotten to pay the late fee.
Whether your tenant pays you in cash, check, money order, or online, they might have been on autopilot and just paid the regular rent amount.
Assume the best. Let your tenant know that you received the rent but that they forgot to include the late fee. If it was an honest mistake, your tenant will likely let you know when you will receive the late fee payment—either now or with the next rent payment.
If your tenant did not forget, however, and tells you that they don’t intend to pay the late fee or just never pays it, you might—if this is a tenant who’s never made a late payment before—let it slide this one time. Let them know that you expect rent on time from now on and that you will enforce the late fee policy if rent is late again.
4. Withhold the Fees from the Security Deposit
If you haven’t forgiven the late fee debt, and your tenant never did pay the late fees they owe you, you have one last recourse: You can take that money from the security deposit.
Remember that whenever you withhold security deposit money, you need to give your tenant a written account of the reason. In this case, document that they didn’t pay rent on time. Tell them which month(s) and the number of days they were late to explain how you arrived at the figure you’re withholding.
Is not paying late fees ever cause for eviction?
In most cases, you don’t want to evict just because you aren’t getting your late fees. As long as you’re getting your full rent each month, it’s usually not worth the hassle of evicting. But if your tenant continually pays rent late, you might not offer to renew the lease at lease renewal time.
Understand that no one likes to pay fees. So make sure you have your late fee policy clearly spelled out in your lease and that your tenant is aware that you will charge a fee for paying rent late.