Many landlords assess late fees to discourage tardy rent payments and to cover the costs of trying to collect rent from tenants. If you plan to assess late rent fees, study your local and state landlord-tenant laws. Some jurisdictions set limits on late fees and may also mandate a grace period before you can charge a fee for late rent. To avoid tenant ill will and possible lawsuits, keep your late fees reasonable and make sure they are clearly described in leases and rental agreements.
Review State and Municipal Laws
Don’t assess late fees until you have reviewed landlord-tenant laws in your area. While many jurisdictions don’t regulate late fees, some do. Check state laws and city ordinances to learn whether there are limits on late fees and when you can charge them. Another thing to look for is how your state or city ordinance defines "day" when it comes to determining the lateness of a rent payment or the length of a grace period. In many jurisdictions, if rent is due on a weekend or holiday, the tenant has until the following business day to make the payment. If you are unsure of how to interpret applicable laws and ordinances, ask a real estate lawyer for clarification.
Include Late Fee Information in the Lease
Don’t charge tenants late fees that are not included in their lease or rental agreement. If your tenant did not agree to pay late fees, she isn't legally obligated to do so. If you plan to charge a fee, include your late rent policies in the lease. For example, if you charge a $25 late fee when rent is three days late, include this information in a lease clause.
Consider Offering a Grace Period
Many landlords offer tenants a grace period between the time of the rent due date and the date when the landlord assesses a late fee. Landlords do this because they want to maintain a good relationship with tenants who may need some flexibility. In some jurisdictions, you must offer a grace period. For example, New Jersey mandates a five-day grace period between the day that rent is due and when a landlord can add a late fee to a tenant's rent.
Keep Delinquency Fees Reasonable
Many judges don’t like it when landlords charge unreasonable late fees. This is true even if you've included your late fee policy in a tenant's lease. To avoid problems, keep initial late fees under 5 percent of the tenant’s monthly rent, increasing the fees only if the tenant's rent payment is significantly late.
Lainie Petersen writes about business, real estate and personal finance, drawing on 25 years experience in publishing and education. Petersen's work appears in Money Crashers, Selling to the Masses, and in Walmart News Now, a blog for Walmart suppliers. She holds a master's degree in library science from Dominican University.