Sometimes a client asks us about daily late fees, perhaps because they’ve charged them themselves when managing their property on their own, or perhaps because a previous property manager charged them. We do not recommend daily late fees for several important reasons:
1. A late fee should hurt. It shouldn’t be something minor that the tenant doesn’t mind incurring so that they can pay someone else before you with their limited funds. You want them thinking of you as their primary person to pay on time every month. Making the late fee hurt as much as possible is a great incentive to make them pay you before paying their other creditors. So charging a modest fee upfront and then a smaller daily fee defeats this purpose and could encourage bad behavior from the tenant.
2. Courts generally won’t allow you to charge more than 10% of the rent as a late fee in total for the month. This means that if you want to charge a daily fee, you’re severely restricting the up-front late fee that you charge on the first day the rent is late. This is bad, as it reduces the incentive for the tenant to pay on time. You want that first late fee to hurt.
3. The administrative burden is a pain. It’s pretty easy to charge a flat late fee on a set day of the month. But keeping track, accurately, of a daily late fee is a lot more difficult. And you don’t want to make mistakes, because that gives the tenant something to argue if you file an eviction. Going before a judge, you want to make sure that you’ve done everything perfectly and the tenant’s behavior is the only thing in question.
For these reasons, we recommend charging one late fee, on the 3rd of the month, and making it the maximum generally allowed of 10%. This provides a powerful incentive for the tenant to pay on time, it’s easy for you to keep track of, and judges like the simplicity.
If you’d like us to worry about these things so that you don’t have to keep up with it, please give us a call or send us an email, and we’ll be happy to manage your property and take care of all the headaches for you so that you can just collect your check.