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Implementing a Late Fee Policy

Collecting timely rent payments from tenants is essential to keeping your property finances in order and promoting responsible tenant behavior. Writing a late fee policy into your rental agreements is a good way to make sure tenants remain diligent about on-time payments throughout the course of their tenancy. Just as important is making sure you hold your tenants to this policy.

Rental agreement payment policies should include the following information:

  1. The day of the month rent is due.
  2. The day the late fee kicks in.
  3. The amount of the late fee.

In a standard rental agreement, landlords provide tenants a five-day “grace period” between the day rent is due and the day the late fee is applied. Late fee penalty payments generally fall around $25. However, before setting the fee, be sure to check state and local laws to find out what maximum fees are allowed by law. While some landlords charge a single flat late fee, others charge an escalating amount for each day payment is late (for example, $5 on the first day, $10 on the second day, etc.). If you do use an escalating scale, you will also need to cap the late fee at a reasonable maximum amount.

Not only is it important to build late fees into your lease contracts, but it’s also important to enforce the policy. With this in mind, though, judgment and reason are called for. For example, if a tenant has lived in your unit for eleven months and consistently paid rent on a time but does not pay until the sixth day of the twelfth month, you may want to give the tenant the benefit of the doubt. If you feel it’s necessary issue a verbal warning but refrain from putting the fee in effect until the next violation. Bear in mind that giving such chances on a regular basis will counteract your late fee policy as tenants won’t take it seriously. Only make such allowances on first violations or in clearly extenuating circumstances.

Finally, remember that as a landlord you want to build good, long-lasting relationships with your tenants. Just as you want to promote timely rent payment by enforcing a late fee policy, you may also want to acknowledge tenants who do pay their rent on time each month. For example, when a tenant has paid rent on time for twelve months in a row, you may consider rewarding them with a small acknowledgement like a $10 gift card to a local coffee shop. While this is obviously not necessary, it’s one of those little gestures that demonstrates your appreciation of a good tenant. Sometimes positive reinforcement is just as important as implementing negative consequences.

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