Receiving late rent payments from tenants can be frustrating, especially when it happens month after month. Despite promising to pay rent by a certain date, some tenants just don’t seem organized enough, or just don’t have enough money on hand, to make their payments on time.
What are your options when it comes to tenants who don’t pay their rent on time? We asked an attorney experienced in landlord/tenant law to respond to these common questions from landlords about late rent payments.
Q: Should I terminate the lease agreement if a tenant is habitually late with his or her rent?
That depends on how much the phrase “better late than never” applies to your situation. Terminating a lease early can be difficult depending on the terms of the agreement and the landlord-tenant laws in your state and it can cause tension and even more uncooperative behavior from the tenant. Getting a tenant out of a unit and finding a new tenant can take a few months. If you’re not getting rent payments during that time, you could be out thousands of dollars. If you let your late paying tenant stay, and you have a “late payment” clause in your lease agreement, at least you get to collect the late fee in addition to the late rent payment.
If the tenant is causing problems in others ways (such as disturbing other tenants or causing damage to the property), or if you just can’t take the late rent payments anymore, and the lease agreement allows you to terminate early, then maybe terminating the lease is the answer. But if the only issue with the tenant is that he or she pays rent three or four days late each month, you should think about whether it’s worth terminating the lease, cleaning the unit, finding a new tenant, processing new paperwork and dealing with other move-out and move-in procedures.
Q: What can I do to prevent late rent payments in the first place?
The lease agreement is your most important tool in preventing late rent payments. Here are some of the most common and effective “carrot and stick” provisions that you should consider using in your lease agreement. Of course, you should always check with your attorney before you make any changes to your rental agreement template.
Sticks: Discouraging Late Payments
- Late Fees: The lease agreement should always specify the day that rent is due (such as the 1st), but consider also stating in the lease that late fees will apply if rent is paid after a certain day (such as the 5th). Be clear what the late fee is, and be careful not to make the amount too high. If a judge finds it unreasonable, your tenant won’t have to pay up. Usually up to 5% of the monthly rent is considered a reasonable late fee.
- “Chronic Late Payments” Clause: This clause would allow you to terminate the lease in the event that a tenant consistently makes late payments. Consider having tenants initial the clause in the lease agreement so they are fully aware of the consequences of chronic late payments.
Carrots: Encouraging Timely Payments
- Discounts: Consider giving discounts for early payments.? The amount can be built into the stated monthly rent.
- Make Payments Easy: Set up rent payments online (for example, through PayPal) or allow tenants to sign up for direct debit.
- Send a Monthly Invoice or Other Reminder: Sending a monthly invoice or a text message reminder keeps upcoming rental payments on each tenant’s to do list.
Late rent payments are to be expected in the rental business, but if you anticipate them in your lease agreements, you should be able to encourage early payment, discourage late payment, and terminate a tenant’s lease if payments are chronically late.
Have you ever dealt with late payments? Did you have a creative way of solving the problem?