Should You Charge A Tenant Late Fees?

Tenant late fees are a touchy subject, and often out of a landlords control for several reasons.

First, if they don’t have money for rent, how will they be able to pay additional fees? You may just be setting them up to midnight move on you which leaves you not only out of rent, but now facing lost time marketing, potentially cleaning and repairing the property and extended vacancies.

Second, what do your local laws state about these types of fees? In my locale we’re not allowed to “penalize” our tenants for late payments, although there are workarounds such as late payment processing fees, discounted rent for paying on time and more.

Third, what do they accomplish? Do they make tenants vindictive? Do they Reinforce the message rent is due ON TIME?

My Thoughts On Charging A Tenant Late Fees

Personally I believe you need to have late fees as part of your lease agreement.

They need to be laid out as to the exact amount whether it’s a flat fee or per day, how it’s calculated and when it starts becoming applicable. And this section needs to be walked through with the tenant during the lease signing!

Better yet, it should be initialed beside by the tenant to show it was gone over!

You want to cover your position as well as possible, so the additional important point is you need to understand how your local laws work regarding these fees.

There may be caps, there may be specific wording, there may be specific phrases you have to use or avoid.

You may not be able to call it a penalty, but can call it an administrative charge for late processing.

You may not be able to charge an excessive penalty, so you need to dig and find out what dollar amount could be deemed “excessive”.

You really just need to do your homework on this to make sure you’re covered.

Charging Tenant Late Fees

This is where it can get interesting. Some landlords actually use late fees as additional income streams.

My stance is they are a warning and they cover any additional costs I may incur. Typically, as the majority of my mortgage payments aren’t due on the first anyway and I have funds to cover shortfalls, I don’t get hit with any out of pocket costs due to late payments.

But at the same time, I don’t want to allow tenants to believe they can simply pay late any time they want. So make exceptions, a lot of exceptions and exceptions I cover with documented letters to the tenant so I have a paper trial!

I may waive any charges for the first offence if they’ve been a good tenant to show I appreciate them.

Or if they have been with me for quite a while and I’ve never had any previous issues.

Or if something unexpected has come up. And just to clarify this, a broken vehicle expense gets far too over used. It happens, but don’t get taken advantage of.

The important part being, if you do waive it, explain to them this is a one time waiver and if it happens again they will get charged. You should also explain you appreciate there history with you and that’s why they have earned this exemption. Then make sure it’s on paper and sent to them.

By not charging the first time and explicitly pointing out it is a one time “get out of paying late charges” award, you do two things. You build a better rapport with your tenants and you establish that there is a penalty if it happens int he future which should be a deterrent.

These are just my thoughts, but they’ve worked well over the years for me. What do you do for late charges or fees? Leave a comment below with your thoughts!