Charging Late Fees
The LPA LEASE CLAUSE # 3, Late Fees
One of the most important elements of modern residential leases today is the Late Fee clause. In order to encourage timely rent and discourage late payments, I highly recommend you have a solid late charge clause. Having the clause in your lease is only part of protecting yourself against late rent.
The first step is to explain and warn the tenant about the late fee when going over the lease before signing it. I'll even ask the tenant not to sign the lease if they think that late payments are in their future. I also inform the tenants that I belong to a national tenant reporting bureau and have the power to adversely affect the tenant's credit, so.. "Don't mess up with your rent. It's not worth it to ruin your credit." If the tenant values his credit and plans on buying a home someday, I remind them that it is very important to prioritize the rent payment and keep their credit clean.
How much should the late fee be? I feel late charges should hurt enough; not to be so comfortable an amount that the tenant continues paying late fees every month. I don't want to make it so high that a struggling good tenant will fall even further behind, but it should be a painful enough fee that the tenant will not want to pay late again. Ever.
Keep in mind that some states have limitations on how much a late fee may be. Although Late Charges higher than the state limitation are unenforceable in court, most landlords are more interested in evicting the tenant than collecting late fees by the time they are in court.
Many tenants who incur a late fee don't really mind paying it in their own good time. That's why it is important to also charge a Daily Late Charge in addition to the initial late fee. It gives the tenant an incentive to hurry up and pay the initial late fee before it grows into an even more painful hit.
Another item we include in our Late Charge clause is a Bounced Check Penalty. I usually make the bounced check charge the same as the initial late fee. I also prepare the tenant that if the rent check bounces, it will cause the rent to be late and they will be responsible for a late charge too.
I want to stress to you that the landlord protection clauses in our lease or any other lease are there to protect you, but sometimes you will need to enforce the lease. Many landlords are afraid to lose their friendly relationship with the tenants when it comes to enforcing their lease. Remember that this is your money we are talking about. This is your property they are occupying and you deserve to have a tenant who lives up to his or her agreement with you. Send late fee notices promptly and make the tenants live up to their rental agreement. - John Nuzzolese
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