With money tight right now, as a landlord you may be tempted to accept a late rent without charging a penalty to the tenant. After all, you are getting your rent money, and doing someone a favor, right? Actually, you may be starting a trend that could end in frustration, anger, and a long expensive legal battle. Here’s how to avoid all of that.
First, before the tenant signs on the dotted line, make it abundantly clear that you will not tolerate late rent payments, and that late rent is a very serious matter that will result in a certain financial penalty. Think of your 4th grade teacher that seemed too strict during the first week, but you learned to love later. That teacher was setting the bar, laying down the rules, and putting fear in your heart – even though you may have fond thoughts now, you knew not to cross the line or else.
So when you put in your lease that rent is due on the 1st and late on the 6th with a 7% penalty, your tenant will know not to test your resolve. Don’t make a ‘one time’ exception, except under the most extreme of (verifiable) reasons, or it may come back to haunt you time after time.
Eventually, you’ll have to deal with late rent. Some landlords have a strict clause in the lease that defines late fees and all expenses related to rent collection as an additional rent amount. You’ll have to see if this is possible in your state, and if there is a maximum late fee that can be charged. So, when you receive any payment from your tenant, you will apply it towards any unpaid late fees and back rent owed instead of the current month’s rent due.
If your tenant is having financial difficulty, they will take the path of least resistance. Imagine the electric bill is due, the water bill, cable, rent, car payment, charge cards, and the loan from Uncle Bill. You want for the rent to be right up there in importance with the electric bill, since nobody can survive with the power off. If non-payment continues, don’t delay in posting a notice to ‘Pay or Quit’ so that the tenant knows that late rent is unacceptable, and has to take quick action.
If this seems a little harsh, just remember that your bank won’t let you slide on your mortgage payment or late fees. And maybe with a little tough love you and your tenant can have the relationship like you did with your favorite teacher in the 4th grade.
BIOGRAPHY: Paul Toller has worked as a computer consultant for real estate for over 20 years. He has helped develop rental property software for property management for the Tenant File Property Management Company, LeaseDesigner.com and www.RentalHomesAvailable.com.