If you’re a landlord and dealing with late rent payments, there are simple tips to keep in mind that will help you deal with late rent from your tenants in the most effective way possible. Whether it’s the first time your tenant has ever been late paying rent or if they’ve been habitually delinquent in the past, these tips will help you better understand how to handle this frustrating situation while keeping your relationship with your tenant positive and productive going forward.
Prevent Late Rent Payments before They Happen
Let’s face it. Unless you are running a charity, the only way you are going to reach your property financial goals or even keep up the maintenance of your property is to keep the rental income coming in full and on time. In order to do that, it’s best to start right at the beginning – before the tenant moves into the property.
Screen Tenants
Properly screening tenants requires a process and tools to effectively collect and process the information you need to make sure you approve a tenant that has the best potential of consistently paying on time. You will never have a 100% guarantee. The best tenants may face circumstances in life and issues they have never experienced before. In this first time landlord article, a screening process is discussed that includes key information to get from the tenant such as full name, ID, references, and proof of income as well as how to get all of this information electronically. Once you’ve screened and chosen a tenant, make sure the tenant signs the agreement before moving in. We’ll discuss why that is important later. Make sure you collect the 1st month’s rent and security deposit as some up-front insurance. This is something most (if not all) renters will expect anyway.
Lease agreement
As discussed in Top 3 Landlord Mistakes, having a properly worded lease agreement protects the landlord AND their property in addition to the tenant. It’s important that the lease agreement follows any state or local laws. If you have trouble with your tenants and go to court, you don’t want a judge to rule against you because of a poorly written lease. When it comes to landlord tenant law, you also need to know that a verbal agreement is not the same as a written agreement. A verbal agreement can be interpreted widely and differently depending on who is reading it. This will create greater legal exposure for you. Think of your lease agreement as the first line of defense to protect you from the impact of late paying tenants, and give it the attention it deserves.
Review expectations with tenants
Make sure you provide the tenant with a copy of your properly worded and signed lease agreement as mentioned in the last section. Go over every page, clause and addendum, and have the tenant initial where appropriate. Give your tenant plenty of time to talk and listen out for any questions so that any confusion or misunderstandings can be handled up front. Make sure the tenant understands when rent is due, any late payment penalties, and what happens if there is a default for non-payment of rents. You need to make sure this review happens before the tenant moves in.
Effectively Document Late Rent Payments
Whenever you have a challenge with a tenant, it’s hard to go back in time to try to remember conversations and circumstances. Issues involving late rent payments are no exception. You want to make sure you document tenant expectations as well as communication. You should have a consistent way of doing this for all tenants so that you protect yourself, your property, and your income in the best ways possible.
Communication in agreements
The lease agreement should have sections that spell out timing of notifications. As an example, you could require a 5 day notice letting the tenant know that they will be in default of the agreement because of non-payment of rent if not resolved. Sometimes tenants think that if they move when their lease ends, this is good enough to end the lease. However, a properly worded lease agreement will state a requirement that the tenant provide a written notice to the landlord a certain number of days prior to the end of the lease to cancel it. If not, the lease will renew and the tenant will still owe future rents. You can provide further protection by stating that the notice must be sent by mail, hand delivery, or even electronically. Finally, specify exactly where notices should be sent for both the tenant and the landlord. Make sure you review state and local laws. You will need to abide by any days of timing specified by laws in your area or where the property is located.
Send reminders
You can send reminders to the tenant prior to any notices warning of legal action. This not only helps with establishing a documentation of communication with the tenant, but it can also give you insight into problems before they start. You may be able to proactively plan a resolution with the tenant or recommend programs that can assist them. At a minimum, reminders can be sent when rent is not received by the due date and when rent is not received by the grace period. Include the amount of rent that is late and unpaid, as well as any late payment penalties or fees.
Document conversations, notes and payment history
All notices, notice dates, and dated tenant responses should be documented including verbal conversations. File documentation for safekeeping in both hardcopy and digital formats according to the type of documentation being stored. Documentation should include any agreed upon follow up actions and timing promised by the tenant. Document clearly what was said to the tenant, the impact of what was communicated, and any decisions communicated. Make sure the tenant understands your position in the matter, ask them if they understand, and record their responses.
Communicate Late Rent Payment Issues Immediately
As discussed in the previous section, many communication requirements along with when the communication needs to be sent and where the communication needs to be sent are spelled out in the tenant’s lease agreement. Other communication that is not mentioned in the lease agreement, such as reminders, can help you be proactive. No matter the communication method, timeliness is a critical factor.
More about reminders
When it comes to communicating late rent payments, the guideline to follow is “the sooner the better”. As a follow up to the section regarding reminders to the tenant, make sure reminders are communicated immediately after an occurrence of the late payment as dictated by the lease timelines. Reminders can be written, verbal or digital. As far as verbal reminders, nothing beats picking up the phone and calling the tenant. Not only does this give you the opportunity to follow up, but it can also help uncover any issues the tenant has with paying rent because it may be easier to get the tenant to open up in a direct conversation. Sending a reminder before late fees are assessed may encourage the tenant to resolve the situation sooner. One tip is to have a preformatted email for all follow ups so that you can be consistent in your messages. The only information that changes is the tenant specific information and the total amount of rents owed.
Late rental payment plan
As you may know, evictions can incur extra cost and they may not all go smoothly. It’s less expensive and more profitable to assist your tenant with getting back on track with a payment plan. This still requires a written agreement between you and the tenant and can include waiving late fees, allowing back rent to be paid over a period of time in partial payments, or paying back rent in full by a specific date if funds are expected to be available in the future. During the payment plan, the normal monthly rent is still due.
Late rent notice to tenant
When sending late rent notices to tenants, another tip is to use a friendly tone when writing the notices. The notice should include the property address of the tenant including unit #, tenant full name, date of the notice, balance due, and a reminder of accepted payment methods. You may also want to include a reminder that paying immediately (if the grace period has not expired) may prevent late charges. This would depend on when the notice was sent, how long it will take for the notice to be delivered to the tenant, and the length of the grace period.
Last Resort to Resolve Late Rent Payments
After you have communicated through various means and nothing has resolved the late rent payments, or if the tenant has not satisfied the terms of the late rental payment plan, it may be time to cut your losses. As previously mentioned, an eviction can incur extra cost, but it will cost you more to have a non-paying tenant in a property for a prolonged period of time. You are not only losing rents that you could be getting from a new tenant, but you also have the risk of a tenant that is unmotivated to maintain the property.
Pay or Quit
A “pay or quit” or “pay or vacate” notice is a notice sent to the tenant giving them a certain period of time to pay all the late rents owed or vacate (leave) the premises and give it back to you, the landlord. The time period that must be given to the tenant can vary by state or local jurisdiction. Tenants must pay by the time period or face eviction proceedings where you can take possession of the property by law. In some jurisdictions, a landlord may still accept partial rent after a tenant defaults on their agreement due to non-payment of rent if this has been communicated in the pay or quit notice.
Eviction
As mentioned, if the time period stated within the pay or quit/vacate notice expires without the owed rents being paid, you can start legal proceedings at the local court by filing and then paying all costs associated with the eviction process. The process can be different by state. What is the same is that a judge will hear testimony, review any evidence, and then decide if he/she will evict the tenant or deny your request. The eviction process is where your documentation of conversations and copies of letters and notices will help. Make sure you have all costs (unpaid rent, utilities owed, late fees, interest, court costs, etc.) documented. This information may be requested in the forms you file to start the eviction and/or during the court proceedings. Some jurisdictions may separate your request for money (i.e., rents, fees, other costs) and your request to take back possession of the property into two separate filings/cases.
Take Possession
If the judge rules in your favor, you’ll be awarded possession of the property along with any monetary decisions the judge makes according to what you have requested and the terms of the lease. For example, sometimes the judge may award a monetary judgment for rents owed and rents for the remaining term of the lease. After judgment, there is usually a waiting period in order for the tenant to be notified by an official, normally a sheriff. Tenants will then have a set amount of time where they can appeal the decision. If the appeal is unsuccessful, or if the tenant chooses not to appeal, the sheriff or other official will execute the eviction on the date communicated to the tenant. In some states, the eviction and awarding possession of the property to the landlord are two separate requests to the judge/courts.
In Conclusion
Dealing with late rent payments is never a fun experience. With a little up-front due diligence when finding a tenant combined with setting expectations at the beginning of the landlord-tenant relationship, you can proactively avoid headaches. When problems do arise, effective lease agreements, communication, documentation, and follow ups are key actions to consistently take to reduce your exposure, limit your losses, and increase your chances at resolving issues with tenants as quickly as possible.
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