Late fees are designed to encourage tenants to pay rent on time. Though a late fee won’t make any difference among tenants who genuinely don’t have the money, there are other reasons tenants pay late. Late fees can be a deterrent for those situations.
Why would someone not pay the rent on time when they have the money in the bank? Sometimes they postpone rent payments because they forget, or they don’t feel like mailing the check.
If you’ve been struggling to get your tenants to pay late fees, here’s what you can do to collect.
1. Put your late fee policy in your lease
If you don’t already have a late fee policy in your lease, write one in as soon as legally possible. If your tenant is on a 12-month lease, for example, you can’t enforce late fees until the end of the 12 months.
If your tenant is living on the premises on a month-to-month arrangement, however, you can amend the lease and start enforcing late fees with just 30 days’ notice.
A policy in your lease gives you the legal right to enforce the policy. Technically, verbal agreements can be recognized by a judge, but they’re understandably harder to prove.
It’s better to avoid verbal agreements, since Texas requires late fees to be in the written lease.
2. Set reasonable late fees
Tenants are more likely to pay their late fees when the amount is reasonable. If you try to charge $50 per day, many tenants won’t want to pay and may outright refuse.
By contrast, if you charge $20 per day for late fees, your tenants won’t like it, but more will pay anyway.
Before 2019, there was no limit to late fees in Texas. However, now late fees are capped off at either 10% or 12%, depending on the type of structure.
Make sure your fees are reasonable according to established legal standards. Your tenants could sue you for charging unreasonable late fees, so if you’re charging more than the legal maximum, a judge is more likely to side with them.
3. Remind your tenant about overdue late fees
Sometimes tenants need reminders. They might write you this month’s rent check on auto pilot, without thinking of their unpaid late fees from last month.
Always assume your tenant has innocently forgotten to pay a late fee. Send a short, written reminder with instructions on how to pay late fees. Tenants will probably pay swiftly after they receive the reminder.
4. Wait two full days before collecting late fees
Under Texas law, you must wait two full days after the rent is due to charge a late fee. This means tenants have two days’ grace to pay the rent. Make sure you always wait those two days to avoid any problems with your tenants.
5. Include an allocation of payments clause in your lease
Again, you may insert this clause only when it’s legally permissible. The clause will make it much easier to collect late fees and evict tenants who outright refuse to pay, if you seek to do so.
An allocation of payment clause allows you to add unpaid late fees to the next month’s rent. If your tenant doesn’t pay the rent plus the added late fees, their rent for that month will technically be regarded as late.
This will create more late fees that will continue to be collectible the following month. Of course you hope the tenants will stop playing games and just pay what they owe.
Here’s how it works with some real numbers: Say you’re charging $1,500/month rent and your tenant has $100 in unpaid late fees. Under this clause, they owe you $1,600 for rent next month.
If your tenant pays only $1,500 for that next month, you will apply $100 from their payment to the unpaid late fees and the rest toward rent. In that case, they will have paid only $1,400 for rent. Now they’re $100 short on rent and incur more late fees every day they fail to pay that $100.
With an allocation of payments clause, you’re giving yourself leverage to evict poor tenants who rack up late fees and never pay. Good tenants won’t have a problem paying their overdue late fees when they recognize it becomes part of the following month’s rent.
6. Avoid retaliation
When you’re dealing with a bad tenant who just doesn’t want to pay late fees, it’s tempting to retaliate. However, any retaliation can get you in big trouble.
Don’t succumb to the usual “self-help” eviction actions like changing the locks, cutting off utilities, and making your tenants’ life harder by changing some of their lease terms. All these actions will come back to hurt you if you attempt to evict the tenant later.
7. Hire a property management company
Trying to collect late fees from obstinate tenants is no fun. But if you have a property manager, you don’t have to deal with any of that. You don’t even have to collect rent or send notices to your tenants.
If you own rental properties in the Houston area, Green Residential can help maintain your physical units and take great care of your tenants. We offer a variety of landlord services, including:
- Tenant screening
- Showing properties
- Rent collection (we collect late fees, too!)
- Eviction services
- Lease creation and enforcement
- Maintenance and repairs
- Licensed home inspections
- And more
Late fee enforcement is necessary
Your tenants won’t like having to pay late fees, but it’s crucial to enforce collection. If renters don’t experience consequences for late rent, they’ll continue to delay their payments.
Collecting rent can be one of the most stressful tasks you’ll face as a landlord. And if you think that’s hard, collecting unpaid late fees can seem impossible. We want to help.
Our experienced property management team members know how to interact with tenants to keep them calm while enforcing the lease. We will treat all your tenants with the highest level of respect, and we won’t hesitate to evict the bad ones.
Get your free Houston property management rental analysis to find out how we can help.