The Property Management Shop
by Marc Wilson
Q. My rental agreements stipulate a $100 late fee in the event of late rental payments. When I receive a late-rent payment, I mail a letter to the tenant with a self-addressed envelope demanding a late fee. Is this fee enforceable? How do I collect from a reluctant tenant?
A. Late-payment charges are beginning to enjoy some scrutiny by tenant activists. Your ability to assess and enforce large late-payment charges could change in the near future. Tenant groups feel that any late charge that exceeds 5 percent of the rent due is unreasonable and possibly usurious. You see, if tenant groups can dictate the amount of rent that property owners can charge for their properties, then there is absolutely nothing that prevents them from dictating to you about everything else. Given the current political climate concerning late-payment charges, property owners might want to limit their charges to 5 percent of the rent payment. Frankly, I’ve never really given it much thought. I usually don’t focus so much on late-rent charges but instead on adopting a zero tolerance for late payments in the first place. I don’t want to cloud the issue when tenants’ payments are late. Late payments, are a material breach of the rental agreement and will result in eviction. Late-payment charges are secondary to this fact.
If a tenant does not pay rent on time, I serve the tenant a Three-Day Notice to pay or quit—no phone conversations, no warnings and no chitchat. If the tenant pays within three days, I send a letter warning about the dangers of habitually late-rent payments. After three or four late payments in a year, I serve a 30-Day Notice to cease habitual late payments. This document states that I will evict the tenant if I receive one more late payment. Ninety percent of all late payers tend to clean up their act after this process. When a tenant pays late, I do send a letter requesting the late fee. I would guess that 40 percent of tenants actually pay the fee. I add a copy of my request to the tenant’s file. When the tenant vacates, I deduct all the late fees owed from their security deposit and call it a day.
To answer your question, you can enforce your late-rent charges as they occur. If your tenant does not tender the requested late payments, send a letter telling the tenant that the first $100, or whatever the amount is, of their next rent payment will be credited toward the late payments that are in arrears. Warn the tenant that the balance will not be sufficient to pay that month's rent and will subject them to eviction proceedings if it goes unpaid. If the full rent and late fees in arrears are not paid in full, serve a Three-Day Notice for the rent owed. If they don’t pay, it’s off to court you go. I think that most attorneys would advise that this type of eviction has a dramatically lower probability of success than a straight nonpayment of rent eviction—so low that I personally would not use this strategy.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Marc Wilson has been managing and selling San Francisco apartment buildings for 15 years. Please send your questions concerning property management and/or apartment building sales to Marc Wilson at 1699 Van Ness Avenue, SF, CA 94109. He can be reached at 415-229-1275. © Copyright 2002.