Automatic rent late fees with proper rent grace periods are a landlord’s best friend, if done right.
Whether you are an accidental landlord or a highly motivated professional steadily growing your rental business, you will realize sooner rather than later that renting is a business, and that you should treat it as such.
Just like any other business, the goal of a rental operation is to maximize profits. As a landlord, you do this by getting paid on time, maintaining your properties, keeping expenses low, and capitalizing on all revenue opportunities.
While there are many great tools available to landlords, setting a rent grace period and creating automatic late fees combine into one of the most effective tools available.
By simultaneously motivating renters to pay rent on time and generating ancillary revenue if they don’t, late rent fees help landlords achieve two chief goals – collecting rent on time and maximizing profits.
So how you can you set the right rent grace period and make the most out of late rent fees in your rentals? Let’s take a closer look.
What is a Rent Late Fee?
The concept is simple – if rent is not paid in full by the end of the rent grace period as specified in the rental lease agreement, it’s considered late and an agreed upon late fee as stated in the lease may be tacked on to the rent payment due.
What is a Rent Grace Period?
The rent grace period is the number of days that must elapse from the date rent is due until it is considered late.
For example, if rent is due on the 1st of the month, and the late fee has a grace period of 3 days, the renter has until the 4th of the month to pay rent in full before it is considered late.
How to Set a Rent Late Fee?
There are some state-specific limits to keep in mind, but as long as you stay within the legal bounds you can set the terms to whatever you and the renter agree to.
Keep in mind however, that these terms can be challenged in court, and if deemed unreasonable, they can be overturned. So we recommend trying to be reasonable when setting the late fee.
Here are the steps you should take when setting your rent late fee:
- The terms of the rent late fee must be clearly stated in the signed rental lease agreement, otherwise they are not enforceable.
- The rent late fee terms in the lease agreement must be reasonable.
- Generally, the tenant should have a rent grace period of least three days after the due date to pay the rent in full before the rent late fee is charged.
- The rent late fee amount should not be unreasonably high. 5% of the rent is generally the upper limit of what is considered fair, but you could go higher if rent is very late.
- Unfair terms may still be challenged in a dispute, even if your renter agreed to them in the signed rental lease agreement.
How Much can I Charge per Late Fee?
As we’ve outlined above, you should always be reasonable and fair when setting the late fee.
Assuming your state allows for it, you could build in certain time-based triggers to incentivize quicker payment or to capitalize on excessively late payments.
So for example, if your monthly rent is $1,000, you could build a rent late fee into the lease as follows (again, assuming your state allows for it):
- Rent is due on the first of every month
- Initial rent grace period of 3 days
- If rent is not paid in full by the 5th of the month, a rent late fee of $50 will be assessed
- Secondary rent grace period of 5 days
- If rent plus rent late fee are not paid in full by the 10th of the month, an additional $50 rent late fee will be assessed
Issues in Collecting Rent Late Fees
At the end of the day, renting is a human-based business, which means that sometimes we let human factors get in the way of the main goal of maximizing profit.
That is why the two biggest obstacles to collecting late fees are timing uncertainties and human emotions.
How do you determine when rent is officially late? Is it when the renter can prove a check was mailed? Is it by 11:59 PM on the final due date? What if a renter sent the check on time but it got lost in the mail – should you still charge the rent late fee?
There are many ambiguities when dealing with cash and check payments, all of which get eliminated with an online rental platform. If online rent payment hasn’t been initiated by the end of the last day of the Grace Period, the late fee is automatically applied.
Because there is a transfer time stamp, email and app notifications, and receipts, there is no dispute on exactly when rent was paid. Also, because paying rent online with an app like Zuby is free and seamless, most of our renters just pay on time.
Whether or not you know without a shadow of a doubt that rent was late – now you have to enforce your policy and ask for the late fee.
As humans, we let emotions like empathy and embarrassment get in the way in these instances, resulting in rent late fee revenue loss for landlords.
By using a piece of software inside a beautiful app to do the enforcing on your behalf, you can finally start collecting late fees instead of feeling bad.
Since your renters also know that they are dealing with precision technology, they will quickly realize that this time the late fee is for real.
Never Lose a Rent Late Fee Again
Using Zuby, landlords can collect rent online for free, screen renters, digitally create leases, and order local service professionals including plumbers, electricians, handymen and more.
When it comes to rent grace periods and automatic rent late fees, Zuby has you covered. Include the terms of your rent late fee as is stated in your rental lease agreement, and we will automatically enforce it for you if rent isn’t paid in full.
Zuby uses your lease agreement terms to create automatic monthly rent payments for your renters and sends multiple reminders of due dates and late fees. This means that you and your tenants are always on the same page and that the rent late fee works exactly as intended.