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late rent fees and grace periods

Late Rent Fees and Grace Periods: Key Details for Your Lease

As a landlord, you may have expenses—like mortgage, utilities, insurance, and maintenance—that are covered by monthly rent payments. When your tenant can’t pay rent on time, it may not just be an inconvenience; it could cause a financial hardship or make you late with a payment. 

At best, tenants who aren’t prompt with their monthly rent take up valuable time or administrative resources, while creating additional stress. That’s why it’s in your best interest to set a policy regarding late rent payments in each Lease Agreement that you sign. 

Below, we’ll discuss common questions related to past due rent and what steps to take when your tenant is late.

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Are late fees legal?

In order to legally enforce late fees for past due rent, your signed Lease Agreement with the tenant must outline what fees will be charged and when. Some states and local municipalities have set guidelines related to the amount of late fees or the length of the grace period, so it is best to talk to a lawyer to ensure that your policies are legally compliant. 

How many days can a tenant be late on rent?

In some states, you may charge a late fee even if the rent is just one day late. Other states require a grace period. While past due rent can sometimes be resolved with the help of a Late Rent Notice and a Rent Payment Plan or Late Rent Payment Agreement, you may need to take further action. 

While proceeding with an eviction is often more costly and time-consuming than simply negotiating with your tenant, you normally are required to wait only a minimum of 3-5 days before starting the process with the court. The exact number of days will vary based on your state and local municipality.

Currently, due to COVID-19 eviction moratorium restrictions, you may not be able to evict the tenant until a later date, or you may need to provide the tenant a longer notice period. If you pursue this option, it is highly recommended that you work with a lawyer to determine when you may deliver an Eviction Notice

Whatever your policy, it is important to be fair and firm, and make sure that you apply it consistently.

What is the maximum late fee allowed by law?

Some states require that late fees be treated as “liquidated damages,” which means that the fee must accurately reflect actual losses suffered by the landlord from the late payment of rent. If your state or local jurisdiction does not impose limits on late rent fees or treat them as liquidated damages, you have a little more leeway in how much you may charge. 

Most reputable online resources for landlords suggest charging late fees between 5 and 10 percent of the monthly rent amount, although late fees exceeding 5 percent are not defensible in all states or in all situations. Another option is to charge a flat fee for each day the rent is late, as long as it, too, is legally defensible under any applicable laws. For guidance on the maximum late fee allowed for your rental unit, ask a lawyer.

Find the right balance as a landlord 

Understanding your rights and responsibilities as a landlord is critical, but so is finding the right balance that will enable you to prosper while avoiding time-consuming disputes with tenants. Explore more legal resources for landlords, or ask a lawyer if you have any specific questions or concerns.   

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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