Unless your tenants pay rent through an automatic payment system, such as one set up with a virtual payment platform, they could be late with rent sometimes (or even all the time). So you should have a plan for collecting rent if it's late, such as implementing a late fee.
You might not ever have to charge a late fee because your tenants might never be late with rent. But if you don't have such a policy or do not enforce the one you do have and simply accept the late rent without penalty, some tenants might think you're OK with it. Once that precedent has been set, it might be an uphill battle to ever get your rent paid on time during their tenancy.
Don't ever feel bad about charging late fees. They help enforce the lease clause concerning when rent is due and are the vehicle that helps prevent chronic late payments.
Please note: Any late fee policy you have must be in the lease or written rental agreement.
How late fees work
Unless your state has specific regulations about late fees (more on that later), you can start charging your tenant a late fee as soon as they are one day late paying the rent. If this is allowed by state law, some landlords charge their tenant on the second of the month if rent is due and unpaid on the first, for example. Other landlords give their tenants a grace period before they start charging a late fee.
Flat fee, daily fee, or a combination of both?
There are different methods for charging a late fee. Here are examples:
- A flat fee: If your tenant is five days late or more, you will charge a $100 late fee that month.
- A daily fee: As soon as rent is late, say on the second of the month if due on the first, you start charging $10 a day until it's paid.
- A combination approach: If your tenant is three days late, you will charge a flat fee of $50 and then $5 a day until rent is paid.
If you will charge a daily or combination fee, you might want to have a cap. For example, let's say you give a grace period of three days. On the fourth day, you charge a flat fee of $75 and then a daily fee of $5 every day after, with the total late fee not exceeding $100. Once the late fee reaches the cap rate, you might then want to start eviction proceedings by, in this case, 10 days after rent is due and unpaid.
Your goal is not to evict or even charge a late fee; it's to receive your rent on time each month, as specified in the lease. Having late fee rules helps you achieve that goal.
How landlords should enforce the late fee policy
If you have a late fee policy, you need to enforce it. Otherwise, there's no sense in having it. The first time a tenant is late, you might want to implement your policy, as you have every right to. But you instead may want to have a discussion with your tenant and waive the late fee the first time.
Maybe there was confusion. Some tenants believe, for example, that if they send the money on the due date, they have paid on time. But most landlords want to receive the money by the due date. They don't care when it's sent; what matters is when it's received. Sometimes a simple explanation clears that up.
Whatever the reason, the first time a tenant is late, it's usually a good idea to remind them about your late fee policy and then start implementing it (or possibly waiving it one time).
How to collect late fees
You can request the late fee in the month the tenant was late. If they don't pay it that month, you can tack the late fee charge onto the next month (if your state allows this). Otherwise, you might be able to deduct late fees that accumulated during the tenancy from the security deposit. Whatever you decide, make sure it's allowed in your state.
How much should late fees be?
You should first check your state law on whether there are restrictions regarding late fees. As of January 2020, 22 states plus Washington, D.C., have specific laws regarding late fees. The other 28 states are silent on the issue.
If your state regulates how much you can charge for a late fee, you cannot charge more. If your state is silent on the issue, you can charge anything you like.
Beware, however: If you charge excessive late fees and your tenant challenges them in court, you could lose. Many states have a "reasonable" fee policy. What is reasonable, however, is up for interpretation. It's a gray area, along the lines of the judge knowing what "reasonable" is when they see it.
If your state has no law on late fees, by looking at what states with such laws allow, you can determine what would probably be considered reasonable to charge.
Late fee laws, by state
Here is a summary of the late fee laws in the 22 states and Washington, D.C. that have such laws, according to Nolo.com:
- Arizona: Late fees must be in a written rental agreement and reasonable.
- California: Late fees will be enforced only if there is a late fee clause in a written rental agreement or lease.
- Connecticut: Landlords cannot charge a late fee until nine days after rent is due.
- Delaware: Landlords must keep a local office where tenants can go to pay rent if they want to start charging late fees. Otherwise, landlords must wait until three days after rent is due to charge late fees, and they cannot exceed 5% of rent.
- Washington, D.C.: A late fee policy must be in the lease. Late fees cannot exceed 5% of rent or begin until rent is five days late. Landlords cannot evict for nonpayment of late fees, but they can deduct those fees from the security deposit at move out.
- Georgia: There are no policies or restrictions regarding late fees, but all contracts for rent must bear interest from the time rent is due.
- Iowa: Late fees cannot exceed $12 a day or $60 a month for rent that is $700 a month or less. Late fees cannot exceed $20 per day or $100 per month for rent that is more than $700 a month.
- Maine: Late fees cannot exceed 4% of the amount due for 30 days. Landlords must notify tenants, in writing, of any late fees at the start of the tenancy, and late fees cannot be imposed until rent is 15 days late.
- Maryland: Late fees cannot exceed 5% of the rent.
- Massachusetts: Late fees and interest on late rent cannot be imposed until the rent is 30 days late.
- Minnesota: The late fee policy must be in writing and agreed to. It may not exceed 8% of the rent.
- Nevada: Courts will presume there is no late fee policy unless it is in a lease or written rental agreement, unless the landlord can provide evidence contrary to the presumption. Landlords may charge a reasonable late fee, but it cannot exceed 5% of the rent amount. The maximum amount of the late fee must not be increased based upon a late fee previously imposed.
- New Hampshire: Landlords cannot charge a greater amount in late fees than the rent amount.
- New Jersey: Landlords must wait five days before charging a late fee to senior citizens receiving Social Security Old Age Pensions, Railroad Retirement Pensions, or other governmental pensions in lieu of Social Security Old Age Pensions; or when rented by recipients of Social Security Disability Benefits, Supplemental Security Income, or benefits under Work First New Jersey.
- New Mexico: The late fee policy must be in the lease or rental agreement and cannot exceed 10% of the rent. Landlords must notify the tenant of the landlord's intent to impose the charge no later than the last day of the next rental period immediately following the period in which the default occurred.
- New York: Landlords must wait five days before they can start charging late fees. Late fees cannot exceed $50 or 5% of the rent, whichever is less.
- North Carolina: Late fees when rent is due monthly cannot exceed $15 or 5% of the rent, whichever is greater. When rent is due weekly, late fees cannot exceed $4 or 5% of the rent, whichever is greater. Late fees may not be imposed until the rent is five days late. A late fee may be imposed only one time for each late rental payment. A late fee for a specific late rent payment may not be deducted from a subsequent rent payment so as to cause the subsequent rent payment to be in default.
- Oklahoma: Preset late fees are invalid. (Landlords are not allowed to charge late fees before they occur.)
- Oregon: Landlords must wait four days before imposing a late fee. The late fee policy must be in a rental agreement. A flat fee must be "reasonable." A daily late fee cannot exceed 6% of a reasonable flat fee and cannot add up to more than 5% of the monthly rent.
- Tennessee: Landlords cannot charge a late fee until rent is five days late. The day rent is due is counted as the first day. If day five is a Sunday or legal holiday, the landlord cannot impose a fee if the rent is paid on the next business day. Late fees cannot exceed 10% of the amount past due.
- Texas: The late fee policy must be in the lease. It cannot be imposed until rent remains unpaid for two days after the due date. The fee must be reasonable. For properties with four or fewer units, late fees cannot exceed 12% of the rent. For properties with more than four units, late fees cannot exceed 10% of the rent. To charge more, late fees must be related to the late payment of rent, such as expenses, costs, and overhead associated with the collection of late payments. Landlords may charge an initial fee and a daily fee for each day the rent is late. The combined fees are considered a single late fee.
- Virginia: When there is no lease, a tenancy of 12 months is created by law, and reasonable late fees may be imposed when rent is five or more days late.
- Washington: Nonrefundable fees must be described in the lease or rental agreement. Otherwise, they will be considered to be deposits.
The bottom line
It's a good idea to have a late fee policy included in your lease, but first check to make sure you're abiding by the laws of your state. If you ever have any doubts about the law or want to double-check your most recent state law, you might wish to contact an attorney who specializes in landlord-tenant law.