PAYING THE RENT LATE - LATE FEES

While many states do not specifically regulate LATE FEES for LATE RENT PAYMENTS, the term REASONABLE or FAIR is often used in stating how much the late fee can be.

WHAT IS REASONABLE

Generally, courts see 5% and under as reasonable or a FIXED DOLLAR AMOUNT. LAW VARY BY STATE and on what balance the 5% may be on or how the late fee may be applied.

If you charge a late fee, you must indicate this in the lease. Tenants, READ YOUR LEASE BEFORE YOU SIGN.

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DUE DATE

The DUE DATE is the date the rent is due. Usually, ANY DAY AFTER the DUE DATE is LATE. IT is a good idea for the DUE DATE to be the date you started the lease or prorated to either the 1st or 15th of the month. 

PRORATED: If you move in for some reason on any date other then the first of the month or a date different then a 30 day term, the landlord (and you) may wish to prorate the rent. For example:

If your monthly lease runs from the first of a month to the last day of a month (assume 30 days in the month) and you move in on the fifth of the month, the landlord should charge you for only 25 days of rent. If the rent is $1,000 per month:

$1,000 divided by 30 days = $33.33 per day (or the per diem)

You used 25 days: 25 days X $33.33 per day = $833.25 for the period. 

Your regular rent of $1,000 would begin the next month. If there are utilities you are charged for, use the same method to calculate the charges for the time you were in the unit.

GRACE PERIOD

Some states that do regulate LATE RENT FEES may also state that a LATE FEE may not be charged until 5 or 10 days (or any number) after the due date or not until the tenant is notified, in writing, of the rent due and possibility of being charged a late fee. You may also give the tenant 3-5 days (if you choose) BEFORE you decide to charge a late fee.

ACCEPTING LATE RENT

If you accept late rent payments from the tenant, even with the late payment fee, you may be telling the tenant "it's ok to pay late" - this is what you 
"imply" to the tenant. 

While it does no good for the tenant to pay late rent, especially with the late fee, some do. 

Notify the tenant in writing, that your acceptance of their late rent and fee in no way waives the actual due date.

CHARGING AND WAIVING THE LATE FEE

The LANDLORD SHOULD ALWAYS CHARGE A LATE FEE - from the first time the rent is late. WHY? If you don't, you are not a good landlord and you will give the tenant the "edge". Be hungry.

Should you decide there is a true circumstance the tenant was late, or they have never been late before etc (even credit card companies waive), you may find it in your heart to "let it go once".  Put it in writing to the tenant that this waiver of the LATE FEE IN DOES NOT MEAN YOU GIVE UP YOUR RIGHT TO CHARGE A LATE FEE IF RENT IS LATE AGAIN.

HOW MUCH SHOULD THE LATE FEE BE

Since not all states regulate LATE RENT PAYMENT FEES, it is up to the landlord to decide how much to charge.

The general rule of thumb is a REASONABLE or FAIR fee, regardless of which method is used. We suggest you use the flat fee method and if you continue to have a problem,  remove the tenant.

EXAMPLES OF LATE FEE CALCULATIONS

assume the rent is $1,000 per month in each example

A PERCENTAGE OF THE RENT 

A FLAT FEE

5% Late Fee

$25.00 Late Fee

Late Fee = $50.00

Late Fee = $25.00

Total Rent Due: $1,050.00

Total Rent Due: $1,025.00

PERCENTAGE penalties may be more common on Commercial Leases while a flat fee more common on residential leases.

OTHER METHODS

DAILY AMOUNT - The landlord may charge a daily amount as a late fee ($10 per day, as an example)

SIMPLE INTEREST - The Landlord may be able to charge simple interest, which is a percentage (use 6% as an example) of the rent that due. It is calculated on a per diem basis, meaning you are charged the rate / 365 multiplied by your outstanding balance

CAN LATE FEES BE ADDED AS RENT AND THEN BE LATE?

Typically the late fee is in ADDITION TO RENT and while it can be carried over as an amount due and owing, it usually cannot be used to calculate additional late fees or to cause the following month's rent to be late.

It is best to charge the late fee for each month - separate from the monthly rent.