As a landlord, you must deal with a lot of people, and as people, everyone makes mistakes. How we deal with these mistakes can vary widely from person to person, and in an ideal world, we’d all give each other some wiggle room to make mistakes and atone for them. The difficult part is deciding how much grace we should give a person without disrespecting our own boundaries. To help you with this age-old question, review this landlord’s guide to late fees and grace periods.
What Are Late Fees?
Late fees are fines given to a client when they do not pay a specified amount in an allotted amount of time. Typically, these fines aren’t given to a client until three to five days after the due fee is late. The amount, time between the due date and late fee, as well as percentage increases varies widely by state and specific situation.
Usually, tenants make it a point to pay their rent on time, and usually, late fees are there to ensure tenants pay their rent on time. Typically, landlords don’t have to enforce late fees as much as they may fear they’ll need to. If you do find yourself enforcing late fees often, you may need to look at how much you’re charging for rent or reevaluate your tenant screening process.
What Are Grace Periods?
The grace period is the time between the deadline and the late fee. As mentioned previously, this grace period usually lasts about three to five days depending on state law, local law, and the specific situation. This period is implemented to give a client the benefit of the doubt and the space to make mistakes or to account for economic issues. Typically, tenants are late on rent due to financial emergencies. This grace period allows the tenant to provide the money or make arrangements with the landlord.
What Are the Laws Regarding Late Fees?
The state and local laws regarding late fees may change depending on your state and local law, so it’s a good idea to be aware of any stipulations or caps your city or state may impose. However, there are federal laws regarding late fees that you should be aware of. The Late Fee Fairness Amendment Act of 2016 is the most notable and important law regarding late fees. While this is a hefty amendment, some of the stipulations are as follows:
- Interest cannot be added to the late fee.
- Late fees cannot be taken from the security deposit.
- Only one late fee can be charged per late payment.
- A landlord cannot evict a tenant for not paying a late fee.
- The late fee cannot be taken out of a later payment of rent.
What Are the Laws Regarding Grace Periods?
Similar to late fees, grace period laws, caps, and stipulations may vary by state and city, but federal law still applies. To understand the federal law regarding grace periods, we must again turn to the Late Fee Fairness Amendment Act. The law states that a landlord cannot charge a tenant a late fee until the rent has been late for at least five days. In addition, if the late fee or rent falls on a weekend or legal holiday, the tenant is allowed to pay on the following business day.
Should I Charge a Late Fee?
Unless late fees are not stipulated in the rental agreement, or there is no emergency order releasing tenants of late fees, you are legally allowed to charge a late fee. However, some landlords with smaller units or people that they’re close to won’t charge a late fee and prefer to have a conversation with the tenant. While this is not advisable from a legal standpoint, it is legal.
However, it is wise in any situation to ensure that your tenant, regardless of closeness, has a late fee. Just as people make mistakes, people and situations change as well. As mentioned previously, landlords do not have to enforce their late fee policy, as the risk of paying extra money makes most tenants pay on time. However, without a late fee, you expose yourself and your kindness to being taken advantage of by those who may not be as kind.
While the decision is ultimately up to you, it is extremely prudent to charge a late fee and have the policy written in the rental agreement.
Should I Allow Grace Periods?
This question is much easier to answer, as you are required by law to allow a grace period of three to five days, depending on how your state or city interprets and applies federal law. However, depending on the situation between you and the tenant, you can make exceptions if you feel the situation warrants it. For example, if a tenant needs to fix an extremely expensive repair on their car, and they can’t access their job to make money, it may be wise to extend their grace period until they can pay the rent and the late fee.
However, every situation is different, and it’s wise to use your best judgment when waiving, extending a grace period, or even waiving a late fee. Any of these options can have serious side effects and some may push your boundaries beyond what you’re comfortable with.
How Long Should My Grace Period Be?
As mentioned previously, your grace period should be no less than three to five days, depending on where you live. While you can increase your grace period due to a tenant experiencing extenuating circumstances, it is not always wise to do so. However, if you feel that it is necessary to extend your grace period, it is recommended that you do not wave your grace period entirely and do not add more than double the days of your original grace period. For example, if your grace period is usually five days, it’s wise not to extend your grace period past 10 business days.
Where and When Should I Draw the Line?
While you cannot evict a tenant based on a few late payments, there are legal avenues you can take if a tenant is consistently not paying their rent on time. While the extent of this law may also vary by state and city, landlords who want to evict blatantly irresponsible tenants can employ the pay-or-quit notice. This is a notice given to the tenant that demands they pay the rent immediately and in full or vacate the property.
But how many times is too much, and where should you draw the line? Again, this is a tricky question as it has no true or definitive answer. While there is no written number on when you’re allowed to employ the pay-or-quit notice, it’s important to note that a tenant can fight the notice, so it’s best to avoid using this notice if a tenant has only been late on rent a few times.
However, if you sense that a tenant is abusing your kindness, is irresponsible with their money, or is not providing good reasons as to why they’re consistently paying late, you may want to employ pay-or-quit to avoid taking more hits to your ROI.
With this landlord’s guide to late fees and grace periods, you’re better prepared to follow the law and set the boundaries necessary to become a successful landlord. However, if you’re still uncertain of the law or need help setting these fees, Excalibur Homes is a property management and leasing company that can help you iron out all the details and make you more confident as a landlord.