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When Rent is Late — Why Late Fee Calculation is Important

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Scott Gibson
Scott Gibson Published : July 5, 2022

It’s standard practice for landlords to charge tenants a fee when rent is late. Charging late fees for rent is an excellent incentive to encourage tenants to pay rent on time. However, late fee calculation can be tricky because of several factors to consider. For example, many states have rent control laws regarding the late fee charge amount and grace periods. 

Many rent payment apps like Rentdrop include a late fee calculator as standard. This rent collection feature for landlords is an invaluable tool to save time and resources. It also keeps you from making mistakes when rent is due and your tenant has missed the payment. 

Landlords and rental property owners can charge tenants late fees. However, there are certain essential factors to consider, including legal obligations to your tenant. 

What is the best practice when rent money is late, and you want to charge a late payment fee? How do grace periods affect late rent fee calculation? Are there any acceptable reasons for late rent payments from tenants? This article answers these questions and more. 

What to Do When Rent is Late

It’s a good idea to have a late rent policy in the lease agreement. Then, if the tenant misses a payment, they must pay a financial penalty. So, the late fee clause should specify what happens in case rent is due and the tenant hasn’t paid the amount in full. 

Of course, there are many legitimate reasons why a tenant’s rent could be late. Therefore, reasonableness on your part is essential. That is why many experienced landlords have a grace period if rent is a few days late. However, firmness is also necessary to prevent a tenant from taking advantage of your goodwill.

For example, calculating and charging a late fee when rent is late encourages on-time rent payments. After all, you also have financial obligations. And if several tenants miss the rent due day, you could struggle to pay your bills. 

Also, charging a fee when a rental payment is late stops tenants from getting into bad habits with paying their bills.

It’s also essential to enforce the late rent fee without exceptions. Doing this helps you avoid disputes with tenants when one finds you change them late fees, but not their neighbor. It also prevents you from violating the Fair Housing Act, which states that landlords cannot act in a discriminatory way. 

Related reading: Top tips to ensure you never wait for late rent payments.

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Can a Landlord Charge Late Fees?

Landlords can legally charge late rent fees if you include a clause in the rental lease. In addition, the late fee policy must adhere to local rental laws. This could affect when you charge late fees and how much you can charge. Therefore, the rental agreement should clearly state the amount and timeframe. 

Rental laws across the country don’t prohibit landlords from charging late fees. And some states don’t legislate how much late fees landlords can charge and when they can enforce the fees. However, other states put caps on late fee charges and specify grace periods. 

For example, California has no laws about late rent fees. However, most landlords charge a reasonable amount if rent is late and provide a few days grace period. This helps prevent frustration with tenants if they feel you are taking advantage of them.

How to Calculate Fees When Rent is Late

Landlords may choose to calculate a late charge based on the number of days, charge a flat fee, or charge a percentage fee. However, whichever calculation method you choose, it must adhere to local state rental laws. Even if there is no late rent fee limit, landlords should only charge a reasonable amount.

Here are some ways to calculate late fees.

Calculating a flat fee when rent is late

Charging a flat fee is the easiest method to calculate late fees. For example, you could state in the lease agreement that a $60 late fee rule is enforced after a five-day grace period. This is easy to track and doesn’t require much effort to calculate it. 

However, the flat fee method typically causes frustration for tenants. This is because a tenant who misses a payment by one day gets charged the same for one who is late by five days. 

A flat late rent fee is typically between $10 and $100. To be reasonable, most landlords base the flat fee on the monthly rental cost. 

Calculating a daily fee for a late rental payment

The best and fairest method to calculate late fees is based on the number of days rent is late. The late fees policy typically has a limit for a late payment. How can you calculate a daily fee when rent is late?

First, you could base the late fee charge on five percent of the total rental amount and then specify the daily charge. Next, you can divide the amount by the number of days in the grace period. 

For example, suppose the monthly rent is $1,500. That would mean the maximum charge would be $75. Now, let’s say you have a three-day grace period. In that case, the daily late fee could be $25. But remember that the late fee cap may be lower based on local rental laws. 

However, some landlords opt for a nominal daily charge of $5 to $20 until the cap is reached. 

Late rent fees based on a percentage

Basing late fees when rent is late on a percentage is an alternative way of calculating the charge. Typically, this is five or six percent based on the maximum amount current rent laws specify.

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How Much To Charge When Rent is Late?

Ultimately, you can charge as much you like in late fees—provided they conform to state laws for landlords. However, it is best to set a similar amount as other landlords in your area. After all, you want to protect your reputation as a landlord who looks after a tenant’s interests. 

For example, you could search online for “rent late fees California” to find out what is acceptable when charging tenants late fees for a missed rent payment.

When Is Rent Due? Grace Periods Explained 

Most landlords state in the rental lease that rent is due on the first day of the month. However, other landlords allow tenants to pay rent according to their income schedule. For example, tenants could pay rent weekly or twice a month. However, the total amount of rent should be collected within each calendar month. 

But what about grace periods? A grace period is when tenants get extra time after the rent due date when they can pay rent without it being classed as late. Some state laws require landlords to have a grace period, whereas, in other areas, landlords can choose. 

Here is how a grace period and late fee charge work when rent is overdue. 

  • No grace period: You can charge late fees from the following day. If rent is due on the first, you can charge a late fee on the second of the month.
  • Three-day grace period: Late fees are charged from the fourth of the month. 
  • Five-day grace period: Let’s say rent is due on the first, and the tenant pays on the eighth. In that case, they are charged a flat fee for three days, depending on your policy. 

What if the rent is due on a weekend or legal holiday? In that case, most landlords accept rent on the next business day. In some states, this is a legal requirement. In other states, this is good practice to foster positive landlord-tenant relationships.

Of course, after the grace period, you are within your rights to request payment of rent in full, including the late penalty charge. Otherwise, you can serve a late payment notice to start an eviction process to remove the tenant from the rental unit.

What if a rent check bounces? In that case, you must allow a 15-day grace period before charging late fees on rent. The risk of bounced rent checks is one reason to avoid tenants paying rent by check.

Acceptable Reasons for Late Rent Payments 

When tenants don’t pay rent when it’s due, there could be legitimate reasons for the late payment. Therefore, savvy landlords avoid jumping to conclusions and serving a “cure or quit” eviction notice for a single missed payment. Of course, late fees should consistently be enforced—for acceptable reasons or not.

Open communication is vital if a good tenant suddenly misses the rent due date. Understanding their situation can help you be empathetic and avoid a minor dispute escalating. 

Here are some acceptable reasons for paying late rent:

  • The tenant received their wages late
  • The forgot
  • They lost their job
  • They had unexpected bills like a medical bill
  • The tenants are a couple and are having personal difficulties

In some cases, a tenant is within their rights to withhold a rent payment due to essential maintenance repairs being ignored or a dispute about rent and bill payments. However, in these cases, good communication between you and the tenant should always be to resolve the dispute amicably. 

Late Rent Calculation — An Important Reason to Use a Rent Payment App

Calculating late fees involves extra hassle for landlords and property managers. It requires keeping track of late payments, grace periods, and the amount of fees to charge. In addition, if you calculate the late rent charge on a daily basis, it can be easy to make mistakes. 

Successful landlords get tenants to pay rent using an online rental payment service. Not only does this streamline rent collection, but it gives landlords control over rent payments. And automatic late fee calculation is just one of the handy rental tools available.

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Rentdrop Includes a Late Rent Calculator

Rentdrop is a fee-free app for online rent payments that includes a late fee calculator. Automatically calculating and charging late fees is a great way to streamline your rental business. It also saves you from disputes with tenants because the rates for unpaid rent are charged automatically.

One of the advantages of Rentdrop is that you can avoid collecting and processing rent checks. For example, personal checks can bounce; if that happens, you must allow a further fifteen-day grace period. That means you may not receive the rent money until the 20th of the month.

Rentdrop has other tools to help you collect monthly rent money on time

For example, Rentdrop sends automatic rent reminders before the rent is due. This way, you minimize the risk of tenants forgetting to pay rent on time. 

Another advantage of Rentdrop is that it includes rent payment controls. For example, suppose a tenant’s rent is late, and you decide to start an eviction process. In that case, you can block a partial rent payment to prevent the tenant from making a partial payment. The tenant must pay rent in full, plus any late fee charges.

Rentdrop also makes the rental process better for your tenants in several ways. First, tenants can make monthly rent payments using their preferred method—debit card, credit card, or ACH payment. Additionally, tenants can use Rentdrop to set up recurring rent payments and split rent with roommates. 

These features are designed to encourage tenants to make on-time payments, so you never have to charge a tenant a late rent fee. Moreover, Rentdrop is free for landlords and tenants to use for rent payments. In addition, a feature coming soon to Rentdrop allows tenants to report rent payments to credit bureaus—an excellent incentive never to miss a rent payment again. 

Why not discover how straightforward rent collection and payment can be and sign up for Rentdrop today. 

Topics: Rent Collection Apps