Many individual landlords (or inexperienced property managers) fail to write their leases or collect rent in a way that will make late fees enforceable if you end up having to go to court to collect and evict a tenant. You would think it would be easy, right? Just write the amount in the lease and that should be it. But as with most things in renting property, it’s not that simple. Legal requirements make it a bit more complex.
First, at least in the state of Georgia, it’s important for the lease to state that the late fee is charged as “additional rent.” Some judges don’t pay much attention to this, but some of them will, and they’ll throw out the late fee in a dispossessory (eviction) proceeding. They feel that they’re only able to issue a judgment about rent and court costs, and they exclude anything else from the judgment. By the lease specifically stating that the late fee is additional rent, you avoid this issue.
Second, be consistent. You can’t go for a year not charging late fees and suddenly decide that you want to start charging them. The tenant can claim that you’ve established past precedent of waiving your right to late fees, and that waiver has become an implied contract. By charging the late fee from the beginning, you avoid this issue.
Third, the late fee needs to be “reasonable.” Some states have actual limits set on this, but others are more vague or leave it up to the judge. In Georgia, there is no statutory limit, but the courts will generally frown upon anything more than 10% of the rent. We frequently see leases written by individual landlords that charge a big fee at the beginning and then a smaller daily fee. The judge will typically throw out the portion above 10%, and you’ll probably hurt your credibility in the eyes of the judge by trying to charge so much. Better to stay on his good side and charge just the 10% that he’ll find reasonable.
Finally, it’s important to apply payments from the tenant consistently to the oldest charges first. If you always apply payments from the tenant to the latest month’s rent instead of towards old late charges, then the tenant can again claim that you’ve waived your right to those late fees. You want to always apply any payment to the oldest charge, whatever that may be (rent, late fee, repair bills, utilities, whatever), and work your way forward. If they don’t pay enough to pay all of their old balance and the new month’s rent, then consider this month’s rent late and charge another late fee. This not only preserves your rights to collect, but it also sends a powerful signal to the tenant that failure to pay their entire balance will just result in more and more late fees piling up. It’s a strong incentive for the tenant to pay their entire balance off on time.
If all of this sounds too complicated, and you want to ensure that a professional keeps everything in check, then please give us a call to talk to us about our services.