One of the main reasons investors purchase rental property is for the recurring rental income. Unfortunately, when a tenant doesn’t pay the rent, cash flow can come to a screeching halt.

Sometimes a tenant simply forgets to pay the rent and all it takes is a quick, friendly reminder to get the tenant back on track. Other times, a tenant not paying rent can require more serious action.

In this article, we’ll discuss options a landlord may wish to consider when a tenant doesn’t pay the rent, beginning with tips for determining if the rent is really late.

Key takeaways

• Tenants sometimes genuinely forget to pay the rent, while other times the situation may be more serious.
• Weekends, holidays, delays in bank postings, and mail delivery can all be reasons why a landlord has not received the rent by the due date.
• Steps to follow when a tenant does not pay the rent include reviewing the lease and landlord-tenant laws, contacting the tenant, sending required notices, offering a tenant cash for keys, and beginning the eviction process.

When is the rent actually late?

Rent payments are typically due on the first of each month. However, there may be times when rent not received by the first isn’t considered late.

Here are some possible exceptions to the rule that landlords may wish to consider when determining if the rent is actually late:

Weekends and holidays

If the first of the month falls on a weekend or holiday, as a rule of thumb, the rent generally isn’t due until the next business day. This is similar to the guidelines the Internal Revenue Service follows. For example, in 2021, April 15 fell on a Saturday, so individual tax returns were not due until Monday, April 17.

ACH transfer

Many landlords ask tenants to pay the rent online by using an online rent payment service or making an Automated Clearing House (ACH) transfer from the tenant’s bank account to the landlord’s account. In some cases, the rent payment may be transferred by the tenant on the first but may not appear in a landlord’s bank account until the following business day.

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.

Check in the mail

Although paying the rent online is the option of choice for many landlords and tenants, some owners still accept rent payments through the mail. Landlords and tenants have no control over how fast the mail is delivered once the rent check is sent. If an envelope is postmarked on the first of the month but not received by the landlord until the fifth, a tenant could reasonably claim that the rent was paid on time because the check was in the mail.

Grace periods

Local and state landlord-tenant laws may require a landlord to give a tenant a grace period before recording the rent as late and charging a late fee. In North Carolina, for example, a landlord must allow a tenant 5 days after the due date before charging a late fee. The legal resource website Nolo.com maintains a list of late rent fees and other rules for nonpayment of rent in each state.

What to do when a tenant is not paying rent

Weekends, bank postings, and the U.S. Postal Service notwithstanding, there may be times when a tenant is not paying rent. Here are things a landlord may consider doing when the first of the month has come and gone and the rent is not received:

• Before contacting the tenant, review the rental agreement to learn if there is a required grace period and what late fees (if any) may be charged.
• Remind the tenant that the rent is due on the first and has not been received. A tenant may genuinely forget to pay the rent or may have mailed the rent check that same day.

Sometimes speaking with a tenant and requesting that the rent be paid immediately will resolve the situation, particularly if the tenant has always paid on time in the past. A personal approach can help to maintain a good relationship between a landlord and tenant and avoid any unnecessary escalation.

6 steps to follow when a tenant doesn’t pay the rent

There also may be times when a tenant doesn’t respond when a landlord reaches out, and the rent remains unpaid. Here are the steps a landlord may wish to follow when a tenant doesn’t pay the rent:

1. Review the lease agreement and landlord-tenant laws

Double-check the lease agreement one more time to learn if the rent is really late. Sometimes local or state laws require a grace period; other times, the lease may contain a grace period clause of a few days, allowing a tenant to pay after the due date.

2. Consider sending a notice that the rent is late

A late-rent notice is a written document notifying the tenant the rent is late. The notice includes the amount of rent due, along with any late fees due, and the date the rent payment must be received in order to avoid further legal action. 

While sending a late notice may not legally be required, the document may serve as evidence that a landlord made a good-faith effort to collect the rent before beginning an eviction.

3. Contact the tenant

Attempt to contact the tenant one more time by phone to make a verbal late-rent notice. When speaking with a tenant who has not paid the rent, a landlord should avoid making statements or threats that could be misconstrued as harassment. A landlord should not enter the property without providing the tenant with proper notice required by landlord-tenant laws.

4. Deliver a pay-or-quit notice

A “pay-or-quit notice” is a written demand that the tenant immediately pay the rent in full, including any late fees, or leave (quit) the premises. States and cities generally have laws describing what information the notice should contain and how the notice should be delivered. 

Sending a tenant a pay-or-quit notice is the first step in the eviction process. A landlord may wish to consult with a real estate lawyer who specializes in residential landlord-tenant law to make sure that the proper procedures are followed.

5. Offer cash for keys

The longer a property sits vacant with a nonpaying renter, the more negative cash flow a landlord has. That’s why a landlord may wish to consider offering a tenant who doesn’t pay the rent “cash for keys.” 

By offering a nonpaying tenant a small amount of cash to voluntarily vacate the property, a landlord may be able to quickly make any needed repairs and begin marketing the property to find a more qualified tenant. 

At first glance, it may seem nonsensical to pay a tenant to leave. However, an eviction may take a month or more and cost a landlord thousands of dollars in legal fees, depending on the city in which the rental property is located. In some cases, cash for keys may be a better business decision than going through an expensive and time-consuming eviction.

6. Begin eviction proceedings

While the last thing a landlord may wish to do is evict a tenant, sometimes there is no other choice. After all other options have been exhausted, a landlord may need to begin eviction proceedings. 

While the eviction process varies from state to state, a residential eviction normally follows these general steps:

• Serve a written eviction notice.
• Sue for an eviction by filing with the appropriate court.
• Prepare documents for the court hearing.
• Obtain a court order allowing the legal removal of the tenant from the property.
• Execute the writ with local law enforcement.
• Obtain a judgment from the court for any past-due rent and cost of repairing any damages caused by the tenant.

Important things to keep in mind if a tenant stops paying the rent

Generally speaking, a landlord may wish to act sooner rather than later when a tenant stops paying rent. Demanding payment when the rent is due lets the tenant know the landlord is serious about the rules in the lease agreement and also may prevent the tenant from falling further behind.

Here are a few other important points for dealing with a nonpaying tenant:

• Avoid accepting partial rent payments because you may need to restart the eviction process if the tenant does not pay the rent balance due.
• Use a written agreement documenting any repayment plan you and the tenant agree to.
• Keep in mind that any co-signers on the lease, such as parents or roommates, also may be responsible for the amount of unpaid rent due.

Use Stessa’s free, secure, online document storage system to keep accurate records of correspondence with the tenant and track the before-and-after conditions of the property to help prove any damage caused by the tenant beyond normal wear and tear.