Having a tenant consistently pay the rent late can be one of the most frustrating challenges a landlord faces.
A tenant who always pays late can wreak havoc on budgeted cash flow and put a landlord in the situation of paying operating expenses late or having to go out of pocket until the monthly rent payment is received.
Here are things landlords can do with tenants who consistently pay the rent late, along with tips to help landlords avoid ending up with tenants who don’t pay rent on time.
- Tenants who consistently pay the rent late may result in a landlord paying the property operating expenses late or paying with personal funds.
- Using an online rent payment service, sending a rent reminder, and having a late-fee policy in place are 3 ways to deter late payments.
- A landlord may agree to a rent repayment plan with a trustworthy tenant who faces financial hardship and is temporarily unable to pay the rent on time.
- Offering a slow-paying tenant cash for keys is an alternative to going through a time-consuming and costly eviction.
10 actions to take when a tenant consistently pays rent late
Here are 10 things a landlord can consider doing when faced with renters who consistently pay the rent late or fails to pay on time:
1. Review the lease and laws
Begin by reviewing the lease agreement, along with local and state landlord-tenant laws. Landlords have specific rights and obligations, including receiving the rent on time, serving a tenant with proper notice, providing a grace period, and charging a late fee, if allowed by landlord-tenant laws.
2. Be easy to talk to
There may be times when a great tenant may begin paying the rent late for reasons beyond their control. Maybe a tenant lost a job and is waiting for a new one to begin, has temporarily lower income due to freelance work, or experienced a change in family status. Having an open line of communication with the tenant can make it easier for a landlord to assess the situation and decide how to move forward.
3. Make it easy for a tenant to pay the rent
Millennials and Zoomers (Generation Z) are 2 demographic groups that often rent rather than own, and many are used to doing everything online. A landlord who accepts rent payments only by mail may inadvertently make it difficult for a younger tenant to pay the rent.
Check out Stessa rent collection – a free tool that makes it easy for tenants to pay on time, and automate key tasks like deposits, receipts, and accounting. Get notified when a payment is made and when it’s been deposited in your account.
4. Speak with the tenant
Sometimes making a friendly phone call is all it takes to stop a tenant from consistently paying late. Even though the rent may be due on the first of the month, some tenants mistakenly believe that they have an automatic grace period to pay by the fifth or tenth of the month.
While some states may require a grace period of a few days before charging a late fee, the rent payment due date is generally the first, unless a different date is included in the rental agreement.
5. Send a rent reminder notice
A late-rent reminder notice is a written document that lets a tenant know the rent is late and the potential ramifications of not paying on time.
The rent reminder notice should include the normal rent due date, amount of past-due rent, including any allowable late fees, and the date the rent must be paid in full to avoid further legal action.
Although a late rent notice may not be legally required, a landlord can use the document as proof that a good-faith effort was made with the tenant to collect the rent.
6. Discuss a payment plan
Some landlords choose to work out a payment plan with a late-paying tenant rather than file a time-consuming and expensive eviction lawsuit. For example, if a trustworthy tenant has always paid the rent on time before, they may require a little extra time to get caught up due to a temporary financial hardship.
Rather than paying the monthly rent in one lump sum, a landlord and tenant may agree to a weekly rent payment plan or change the due date from the first to the fifteenth of the month. Any agreement made should be put in writing, signed by the landlord and tenant, and added as an amendment to modify the existing lease agreement.
7. Serve a pay-or-quit notice
If a tenant continues to pay the rent late, a landlord may serve the tenant with a “pay-or-quit notice. This is a legal notice sent to a tenant demanding that the tenant pay the rent in full or immediately vacate the premises.
A pay-or-quit notice indicates the amount of rent due, including any applicable late fees, a deadline for paying the rent, and the consequences of not paying the rent in full or not vacating the premises.
Because a pay-or-quit notice is also the beginning of the eviction process, a landlord may wish to consult with a residential real estate attorney to ensure that the notice is correctly written and served to the tenant.
8. Offer cash for keys
The cost for evicting a tenant can be between $4,000 and $7,000, depending on the city and state in which the rental property is located, according to a recent post on the BiggerPockets Blog. Rather than going out of pocket for thousands of dollars to remove a tenant who consistently pays late, another option a landlord may wish to consider is offering the tenant cash for keys.
A landlord may find it makes better business sense to pay a tenant a small amount of money to leave rather than go through an eviction. A cash-for-keys agreement should be put in writing and signed by both the landlord and tenant. As a rule of thumb, cash should be paid to the tenant after the tenant vacates the property and not before.
9. Evict the tenant
After exhausting all other options to stop a tenant from consistently paying late, a landlord may decide to begin the eviction process.
Because specific eviction steps vary based on the jurisdiction in which the rental property is located, a landlord may wish to hire an eviction lawyer. Some cities have law firms that specialize in residential evictions for a flat rate, and some local property management companies also may oversee an eviction with a trusted attorney for a small service fee.
During the eviction process, a landlord should not harass the tenant or shut off utilities. Also, accepting a partial rent payment from a tenant being evicted may require a landlord to begin the eviction process all over again.
10. Investigate rent guarantee insurance
Rent guarantee insurance, also known as landlord rent default insurance, protects a landlord from loss of rental income when a tenant defaults on the rent. Depending on the insurance carrier, rent guarantee insurance may provide coverage when a tenant stops paying rent and is evicted, abandons the property, breaks the lease, or dies with no one left to pay the rent.
The premium for landlord rent guarantee insurance varies based on the monthly rent, the type of property, where the property is located, and the type of coverage selected. Coverage options may range from 6 weeks to 6 months of lost rental income during an annual policy period.
Tips for avoiding late rent payments
Having a tenant consistently paying rent late can be a frustrating experience. Here are tips to help landlords avoid late rent payments:
- Thoroughly screen prospective tenants by conducting a background check, obtaining a credit report and rental history report, and speaking in person to an applicant’s references.
- Communicate to the tenant when the rent is due and the potential consequences of not paying the rent on time, both when the lease is signed and during the move-in inspection with the tenant.
- Include a late-fee policy in the lease and charge a late fee, if local and state landlord-tenant laws allow.
- Use an online rent payment tool to make it easy for a tenant to pay the rent. Many services for paying the rent online will send a payment reminder to a tenant, automatically calculate any late charges, prohibit partial rent payments, and report tenant late payments to the credit bureaus.
Landlords have several options when dealing with late-paying tenants. Before beginning an eviction, a landlord can speak with the tenant to learn why the rent is late, consider putting together a payment plan with the tenant, or offer cash for keys instead of going through a costly and time-consuming eviction.