Landlord/Tenant Q&A: LURLINE R. JOHNSON (R), ABR, CRB, CRS, GRI, RMP
LURLINE R. JOHNSON (R), ABR, CRB, CRS, GRI, RMP
Property Profi les, Inc.
Past President, Oahu Chapter
National Association of Residential Property Managers
Q. My friend said that she heard we can no longer charge a late fee if the rent is late. Something about a new law that has been passed. I have it in my contract that I can charge $100 if the tenant is late – can I no longer do that? That doesn’t seem fair to me if they don’t pay their rent on time.
A. Your friend doesn’t quite have all the facts. There is a Senate Bill (SB119 SD1 HD1 CD1) that is currently on the Governor’s desk for signature. The bill establishes a cap of eight percent (8 %) on late rent payment fees, applicable to all new rental agreements and rental agreement renewals entered into on or after the effective date of the measure – which is November 1, 2017. The expectation is that the Governor will sign the bill and it will go into law.
So this translates to any new lease entered into, any month-to-month lease and any fixed term lease that is renewed after November 1st would be capped at the newly established rate. Of course you could always charge a lesser amount – it just depends on how you nave set up your business.
If you do your due diligence in qualifying a tenant, chances are late rent payments will be few and far between. However, if you rent for a long enough period of time, or if you have multiple rentals, eventually someone will be late on a payment. Even the best tenants can run into situations.
Keep in mind that renting a property for the long term is about a relationship between the landlord and tenant. Jumping on the opportunities to charge your tenants late fees might not be the best strategy. If your tenant has been renting from you for some time with no late payments (maybe 6 months or longer), you could cut them a break for being late. The day after their payment is late, give them a call on the phone and remind them of the overdue payment. Tell them you’re happy to waive the late fee if they bring the payment over in the next 2 days. People like to know that they’re doing business with reasonable people.
Of course there are times when late fees are appropriate. Late fees should be imposed when tenants are chronically late on payments or when tenants are very late on payments. The extra motivation that applying a late fee provides may be just the thing that makes your tenant more responsive.
That said, if you’re in a situation that merits charging tenants late fees, you’ve probably got a bigger problem. People who pay their bills late on a regular basis do so because issues are present in their lives maybe their regular income has been affected somehow or they have unexpected expenses that they didn’t budget for. Of course they could just be bad in handling their money regardless, you need to stay on top of a tenant who pays late.
If you decide to impose a late fee on your tenants, you should notify them in writing of the delinquency. The late fee must be consistent with the terms you agreed upon in your original rental lease. In Hawaii a demand letter is sent which gives the tenant 5 business days from receipt of the notice to send in the past due payment or the rental agreement could be terminated. This should if nothing else prompt a response from your tenant – either making the payment or starting some sort of negotiation. If you don’t get any response from your tenant then you may have to prepare yourself to go forward with an eviction and the 5 day letter is necessary to begin the eviction process.
One last thing on this point: the letter you send should be based only on fact, not opinion. There is no need to accuse the tenant of anything more or less than being late on their rent. If the issue ever goes to court, you want to have clean, appropriate documentation to support your case.
Charge late fees only when they make sense for the situation. Write the terms of late fees into the rental agreement, and always communicate adverse information clearly, concisely, and in writing with your tenants.