The Following is a post from our Joy of Rental Property Management Blog
Ever get sick of your tenants being late? Have tenants that somehow just want to let late fees somehow slide into oblivion and just pay the normal rent even if they are late? Want to make your regular payers feel special when they don’t pay late?
Here’s a new concept for your lease toolbox. Give people breaks for paying on time, instead of penalties for paying late.
Hold on, I’m going to lose a ton of money that way, right?? Not exactly. I didn’t say you had to give a rent discount off your current price. What if you raised your rent 10% or $100 and then agreed to give that back to the tenants when they pay on time? This way the rent is set at a certain amount, and if not paid on time they pay the listed (or as I like to call it ‘default’) rent. But…..if you are paying on time, you get rewarded by being able to pay a lower amount! Which of these do you think a tenant will be more responsive to and feel a greater obligation to pay on time: the creation of a late fee, or the loss of a rent discount? And even if they say they would rather lose out on the rent discount if they need to pay late, they still feel compelled to pay the un discounted rent, whereas many tenants will just pay the overdue rent, and leave you to harass them for the late fees.
Is this crafty? Sure. But I’ll be a monkey’s uncle if it doesn’t work. And you can go even further with it and create an even larger disincentive to pay late by having both the rent discount disappear AND a late fee apply for late payments. Perhaps you stagger those so that there is an early (discounted) payment window (before the 5th), a ‘standard’ payment window (the 5th to the 10th), and a late period (after that), where the late fee now kicks in. This gives the tenant another window of, “Well I’m late but not too late” to pay. But if in fact they have actually paid the forfeited discount, you get more rent, and they don’t feel bad about being late, or decide that they don’t deserve to pay a late fee and just let it sit on your books, until you decide to do something about it.
This stands up strong in court as well. In the past, we had charged a $100 admin fee on top of late charges as a consideration for having to file eviction paperwork on someone, both in fees and hassle. But this amount was typically tossed out by the judge in court. But if the rent includes that $100 amount already, and the tenant hasn’t paid it, it is hard for anyone to argue that if the tenant agreed to those terms, and it’s what the lease spells out, that they wouldn’t be responsible for those charges.
Obviously, not every state is the same, and any landlord thinking of implanting this technique in their locality should check their applicable landlord tenant law, or consult their attorney.
YOU ARE ONE STEP CLOSER TO THE DESTINATION.