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Should Landlords Charge Late Fees?

Most landlords have had to deal with a tenant who doesn’t always pay on time.

If you’re enforcing late fees the traditional way, it will probably follow a pattern. A tenant misses a due date. After the grace period, you start tracking the tenant down. You ask for the late fee and then listen earnestly to their excuses as to why they couldn’t pay on time. Eventually, they get you the rent payment, but they don’t include the additional late fee. So, after you get your rent, you have to decide whether you want to keep pursuing the late fee or not.

Because late fees can seem like a hassle, it may seem easier and more time-efficient to just do away with them. This might leave you wondering: Should landlords always charge late fees? This article aims to answer that question.

Late Payments are a Breach of Contract

Some landlords tend to think of late fees as more of an incentive than an actual punishment. When you implement a late fee and follow through, it encourages tenants to get rent payments in on time and in full.

While this may be true, you shouldn’t drop a late fee after it’s served this purpose. A late payment is a breach of your lease agreement, a legally binding contract. If a tenant doesn’t pay late fees, they’re not holding up their end of the contract, and, as a result, they must be penalized. Allowing tenants to pay late without consequence does not hold them accountable, which will make them more likely to make late payments in the future and perhaps even start breaking other terms of the lease.

Late Payments Can Lead to Financial Issues

Beyond holding your tenants accountable, late payments can be dangerous for your business. Because rent payments are a source of income for you, if you don’t receive them in time, your financial responsibilities could be put at risk.

For example, let’s say rent is due on the first day of the month. A week later, after the grace period, your tenant finally gets you the rent payment. But if you had your own payment you needed to pay by the fifth of the month, you’ve now been put in a difficult position if you depend on your tenant’s rent payments for your own finances. By charging late fees and incentivizing on-time payments, you reduce this risk.

Waiving Late Fees

Perhaps you have a tenant who has always paid on time, and they slip up once. Should you waive their late fee?

Waiving late fees, even in this instance, isn’t a good idea. If a tenant realizes that they can pay late without consequence, they’ll be more relaxed about it in the future. Not every tenant wants to take advantage of you, but to avoid anything that gives the wrong impression, you shouldn’t waive late fees.

Furthermore, if you do decide to waive a late fee for one of your tenants, it’s only fair to do so with all of them. If you don’t, your tenants will accuse you of playing favorites, which not only hurts your landlord-tenant relationships, but may even make you liable for housing discrimination. It’s better to be consistent.

Enforcing Late Fees

It may be clear now that late fees are a necessity in the rental business. With that being said, enforcing them the old-fashioned way can be time-consuming, difficult, and uncomfortable. If you use property management software, it won’t be. 

Property management software does all of the heavy lifting for you. All you have to do is set up late fees on the software according to the provisions of your lease agreement. After you put in a set amount and a customized grace period, your job is done. 

If a tenant misses a payment and the grace period has passed, they’ll automatically be charged the late fee, which must be paid on top of rent on their next statement.

Property management software will also send out automated and customized reminders when rent is past due, maintaining a healthy stream of communication and expediting when you’ll receive your payment.

Conclusion

Late fees are nothing personal. As a landlord, your business can’t afford late payments, so you must incentivize tenants to pay on time and penalize them when they don’t. By using property management software, you can easily and effectively enforce late fees without coming across as the bad guy.

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