When renters pay their rent late, most property owners impose late fees as penalties.
Late rent penalties are typically based on reasonable percentages of a tenant’s monthly rate of rent (which stands at 5 to 10%) or on a flat fee. In some cases, the landlord only charges late fees if this was already outlined in their rental lease agreement terms.
However, if the lease doesn’t include a late fee clause, the landlord will not be entitled to suddenly ask his tenants to pay a fee with the due date of their next payment.
Local and state laws have dictated how much fees landlords are allowed to charge for these late payments. Whether you choose to charge a percentage of rent or a flat fee for the late fees, the law usually states a maximum amount allowed per month.
Most states believe that landlords are only liable to charge reasonable amounts for late fees, typically at under 10% per month.
Lease Agreement and Late Fees
A lease agreement should typically outline all the terms and conditions for rent payment, including the late fees policy. An optimal lease agreement should include:
- The monthly due rent
- What day the rent will be due (and what to expect if the day for rent payment falls on a holiday or weekend)
- How the rent should be paid (i.e. paid online, dropped off, or mailed)
- On what day the rent payment will be considered late (i.e. if you wish to have a grace period)
- What will happen if the rent is late (what percentage of late fee will be due and how you renters are charged)
- What will happen if the rent remains unpaid (this includes details for termination of the rental agreement)
Here, you should reference the state’s applicable statutes in the terms of rent payment and the policies for late fees. It will also be wise to appoint an attorney or property manager who is well-versed in the laws of the state to review your rental agreement before you have tenants sign it.
When Will a Late Rent Fee Be Illegal?
If you have not included a clause for late fees in your lease agreement, the landlord will not be liable to ask for it. Most states only allow a reasonable amount as a late fee. For instance, 10% is typically considered to be unreasonable.
Based on the previous statement, if a renter has signed a rental agreement where the landlord has included a clause for an unreasonable amount of late fee, it will still be well within your rights as a tenant to refuse the payment. They will also have the right to challenge the landlord in court if they decide to evict you because you broke the provision in the lease agreement.
If you are unsure whether your provision for late fees is following local and state laws correctly, you should start by researching landlord-tenant laws.
However, if you don’t have enough time to deal with these issues in your rental property, you can always delegate these tasks to your property manager or hire the right professionals for the task at hand. The only thing you will be responsible for is to offer your potential tenants more affordability, personalization, and authenticity as opposed to rent collection.