It’s common practice. Most landlords impose late fees to discourage residents from being tardy with their rent payments. But how do you know if your late fee falls within legal limits? In some states, the size and situation may govern whether your late fee is illegal or not. So here are some questions to ask yourself…
Is your late fee considered excessive? While it varies by state, some localities may impose a dollar limit on late fees. But even in the states that don’t enforce a maximum fine, your late fees can still be deemed as excessive. As a general rule, a late fee might be considered unreasonably high if it exceeds more than 5% of rent. So if the monthly rent is $1,250 and the late fee is more than $62.50, it could be ruled as excessive should your renter challenge you and take you to court. This 5% rule of thumb doesn’t always hold true, but it’s a reliable guideline for comparison.
Is the late-rent fee included in your lease agreement? If your rental agreement does not contain a clause about late fees, you cannot impose one, no matter how reasonable it is, or how late the rent may be. Period. In other words, if a tenant’s rent is two weeks past due when they finally get it to you, you cannot fine them if the policy isn’t clearly spelled out in the rental agreement. That’s why you must be proactive and review your lease agreements at least once a year, make sure all of the fees and provisions listed are still are applicable and correct.
What if the renter has already agreed to a high late-rent fee? Your tenant may have agreed to a $100 late fee if they’re more than five days late with their $500 monthly rent, but this doesn’t mean that it will hold up in court. Should this tenant decide to challenge you, citing that the fine is unreasonable and excessively high, most courts will hear their case, potentially ruling in their favor. Even if you believe that by signing their lease, the tenant waived their right to dispute the $100 late fee, you might want to delve a little deeper into your state’s laws on delinquency fees and rulings on similar cases.
What’s the long-term effect? It’s good to contemplate the ramifications of enforcing late fees. If your tenant has always paid their rent like clockwork, but was late this month (for whatever reason), is it worth potentially tarnishing an otherwise stellar relationship over a relatively modest sum? It may not be worth any hard feelings that might carry into the future.
Why are they late? If you do have a repeat offender, perhaps you might ask if there’s a reason for their tardiness. Maybe it’s because they don’t receive their paycheck until the following week. If that’s the case, simply offering to move their rent due date back a week may score you some points and make them a long-term renter. In the case of late-rent fees, it’s always best to think of the relationship first. Because sometimes you’re not a property manager… but a relationship manager!
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