Best Practices to Handle Late Rent

OH NO!!!  My tenant hasn’t paid their rent.  What do I do?

Far too often, when this happens to a new landlord, they end up throwing in the towel and deciding they don’t want to be a landlord anymore.  The stress of a situation like this is more than they want to deal with.  Don’t give up.  See how the pros at Kasteel Property Management do it.

A tenant that is not paying rent can be a very frustrating situation.  In most cases though, if you screened your tenant well then hopefully you have a great tenant and the situation quickly resolves itself.  The tenant communicates their situation and promptly gets caught up and pays their late fee. (See our blog on screening rental applications)

Although that is what we hope for, there are those times when the tenant is not as forthcoming or as truthful as they should be.  If you are not prepared then the situation can become very stressful.

Maybe the tenant isn’t communicating at all, or has made several promises about getting caught up and continually fails to follow through.  Adding to the frustration they start ignoring your calls, leaving you feeling like you need to keep chasing after them, when all you really want is for the rent to get paid.

Lets go over some best practices to handle late rent.  As I discuss my process keep in mind each State has different laws.  My process is affective in Utah and compliant with Utah law.  If you are in a different State I think you can still learn valuable information here but you will need to individualize it to your own State laws.

6 Ways to Help Prevent Late Rent.

As with most things in property management, planning ahead and forming a plan of how to deal with a situation before you are faced with it will save you a lot of headache and time.

1. Before you even have tenants make sure you either have a firm knowledge of how to evict someone or have a good attorney that is experienced at doing it.  You hope you never have to evict someone but just having that information or resource in place gives you peace of mind and allows you to quickly get your rental property back on track when you are having trouble with a tenant.
2. Another thing to do before you get a tenant, is develop a written step by step process of how to deal with late rent.  Ideas for this will be covered in the next section.

1. After a new tenant signs up, send them a welcome letter that outlines basic information they need to know including the information that there is always a late fee when rent is late.  Make this clear in the lease and set this expectation upfront.
2. The welcome letter should also tell the tenant that if they are going to be late with their rent they need to email you before hand to let you know the date they plan on having it paid.  They need to understand they will still be charged a late fee.
3. Be firm.  No exceptions.  There is always a late fee as outlined in the lease agreement.  My lease provides a grace period before the late fee is charged. I make sure they understand their rent is due on the 1st, late on the 2nd, and the late fee is charged after the 5th.  If they choose to wait until the end of the day on the last day of the grace period to try and pay their rent but can’t because some problem arises in their day or with their payment method or whatever and they want to try and use that as an excuse, I tell them I already gave them 5 extra days after it was late before charging a late fee and it’s now too late.  Being firm on this can encourage them to figure it out earlier next month and help prevent late rent in the future.
4. Your actions today can determine their behavior when paying rent in the future.  So follow through with your procedures for dealing with late rent.  Don’t sit and wait and hope things work out.

6 Step by Step Procedures to Follow When a Tenant Doesn’t Pay Rent

Below is my procedures for dealing with late rent, based on what is allowed in Utah.  Check your State for individual laws.

1. Charge a late fee as outlined in your lease agreement.
2. Because I have prepared my tenants (See “6 Ways to Help Prevent Late Rent” above), in most cases my tenants will send me an email before they are late to let me know they will be late that month.  They include what day they plan on having it paid and that they will include the late fee.  As long as the day they plan on paying is not too far away (within a week or so) then I thank them for letting me know and that is usually all that is needed.  This shows responsibility on their part and that they have a plan.
3. When they have not communicated about being late by the day the late fee is charged, I send them an email that morning asking about rent and reminding them that they need to send me an email before they are late.
4. If they don’t reply to the email in #3, or haven’t paid rent, then by about 2:00 in the afternoon, I send them a text with the same message as the email.
5. The very next morning, if needed, I deliver a 3 Day Pay or Vacate notice.
6. After the 3 days have passed, if they still have not paid the rent, then I turn them over to my attorney to begin the eviction process.  This does not necessarily mean it is over for them and they get evicted.  It just means the process for eviction has begun and while that process takes it course the attorney makes efforts to collect payments and get things back on track.

Because I take effective steps to prevent late rent I usually don’t get past step #4 before things have been resolved.  Sometimes I get to step #5 and rarely is step #6 necessary.  Although, how far I progress through each step is dependent on the tenants actions and nothing else.

I make sure to move very quickly on late rent because it doesn’t take long before the next months rent is due.  For the sake of everyone involved a resolution needs to be found quickly otherwise the situation will get much worse.

8 Things to Avoid When Dealing with a Tenant Late on Their Rent

1. Never agree to let them be late.  This can be trickier than you might think.  Often a tenant will ask me if it’s ok if they pay late this month.  I have to be careful that I don’t answer in a way that is making an agreement different than what the lease says.  If they ask by email, I can usually reply by just saying, “thanks for letting me know” and ask any follow up questions I need to know like what date they plan on having it paid.  That way I didn’t agree to anything.  If they are on the phone or really push for an answer I politely say, “It’s never okay to be late. We’ll have to follow the lease and there will be a late fee but thank you for letting me know.”
2. If things start to get “hairy” don’t engage in too much conversation or arguing with them.  Follow your procedures and let their actions do all the talking for them.

1. Don’t be afraid of moving forward in your process.  The legal process of actually evicting someone has plenty of warnings and delays.  Don’t add your own delays to it.  Move quickly.
2. Don’t get too anxious and don’t move around the law.  Let the process play out.  If you have prepared, as explained above, then you already have your process in place and you will know the timeline for an eviction in your State.  The tenants may get things resolved on their end or they might not, or they might just move out.  You’ll just need to wait and see which resolution works out first based on their actions.
3. Don’t withhold repairs.  You don’t want to become the bad guy.  Keep up on your responsibilities otherwise you might create more issues than just the unpaid rent.
4. Don’t negotiate more time after the Pay or Vacate notice has been delivered.  If you get to the point of needing to deliver a 3 Day Pay or Vacate notice and now they want to communicate and want more time, it’s too late.  You can politely explain, “you should have communicated earlier and because you didn’t you’ve created more problems for yourself.  The legal process has started and I can’t undue what has been done.  You have 3 days to pay or vacate.  If you don’t, it’ll be turned over to the attorney and you’ll need to work it out directly with the attorney including the additional attorney costs.”  This is usually very motivating for them.
5. Never ever waive a late fee.
6. Keep your emotions in check.  You getting upset and arguing with them will make things worse.  Remember #2.  Being prepared before there is late rent with your procedures and the legal resources you need will help you feel in control and calm.

What if it’s a really nice tenant in a bad situation?

I think it’s important to mention that sometimes it can be really hard to stick to your procedures for late rent.  Especially, if the tenant is a really nice person in a bad situation.  For example, they lost their job, or they got sick, were injured somehow, or had a death in the family, etc.  Although these scenarios may be cause for being extra understanding and helpful it is still important to be consistent and stick to your preplanned procedures.  The tenant still needs to be able to pay rent or they can’t live there.  I know that sounds harsh but read on.

When I’ve been faced with situations like these I’ve found it works out as long as the tenant is communicating.  Communication is key.  If they let me know they won’t able to pay rent anymore, then they also know they need to move.  If they are communicating and in the process of moving, then there is no need to also evict them.  They need to be planning on moving out as soon as possible.

• I express my concern to them and wish them the best of luck.
• I also thank them for letting me know and that I want to help them as much as I can.
• I tell them I know money must be tight right now and if we can get someone else living there right away it’ll save them the costs of continued rent payments, especially if they are still locked into a lease.  I ask them to work with me to show the place while they are still there so I can help them sell their lease.
• I let them know I also hope to be able to return all of their deposit.  I then give them a list of commonly missed cleaning items that get deducted from peoples security deposits to help them out.

They are usually very understanding and grateful. You don’t need to sacrifice your own needs and financial security to be kind and helpful.  You can get them on their way, hopefully it works out to be able to refund them some deposit money, and you are able to get your rental back on track as quickly as possible.

You can do this!

If you are prepared, with your written step by step procedures and having the resources that you may need ready, then your stress level will be greatly reduced when faced with a tenant that is not paying their rent.  Leave the stress of the situation on the tenant’s shoulders, not your own.  You can be nice and polite and hope for the best for them at the same time that you are moving forward with your procedures.  Remember, how far you get down the road towards eviction is based on their actions, not yours.

Stay tuned for more written blogs and videos from Kasteel Property Management.