August 8, 2013

What To Do When Tenants Are Late Paying Rent

If you're a landlord for very long then its almost inevitable that eventually you'll have a tenant that is late on a rent payment.   Even the best tenants may occasionally have late payment due to circumstances beyond their control or simple accidents on their end.   One of the unfortunate jobs of a landlord is dealing with late rent.  Its never fun to have to chase down tenants and be the 'bad guy'.   But if you're prepared and follow a rational process you can minimize the pain as much as possible.   Below is my advice for how to handle late rent.

First  The Quick Summary: 

I've got a lot of points below but I wanted to first cover the basic key points.

1. Don't panic and treat it professionally as a business transaction.  Your finances should be in order so this shouldn't set you back personally (assuming they do eventually pay). 
2. Enforce your late fee and get a commitment for repayment.
3. Don't let the tenant get too far behind. 
4. If it goes on for more than a month then first suggest they move and if that doesn't resolve it then start forward on eviction process.

Be Prepared For Late Rent

You should expect that your tenants will be late with rent on occasion.   To prepare for that you really need to have your own finances in order.   If you're living paycheck to paycheck yourself then you'll end up struggling with your bills if your tenant hasn't given you money they owe.    You should have a reasonable financial cushion for your rentals.   This can either be its own fund or part of your personal emergency fund.   If you have your money in order then a late rent check won't really hurt.   You should also expect some losses due to tenants who move out without paying in full.    Don't expect to get 100% of the rent money 100% of the time, that is unrealistic.    If your finances and budget are in order with realistic expectations then a late check won't cause undue harm to you financially.   Being prepared for late rent will also help you deal with it emotionally which brings me to the next point ...  

Don't Panic

Its easy to get anxious and give yourself an ulcer if you worry too much about when a tenant will finally come through with an over due rent check.    Late rent is inevitable.   It will happen eventually.   You should first prepare yourself for it so that when it does happen you don't over react or panic.   A late check doesn't mean you won't get the money.   More often than not tenants will pay their rent after being late.  If all goes well then you'll get the money and no harm will be done.    If the tenant is simply unable to pay then this is a loss that is part of the business.

Don't Take it Personally

Some people may get upset and take personal offense to a late rent check.    A late rent check has nothing to do with the landlord personally.   Tenants don't choose to be late on rent in order to inconvenience you.  

Keep In Mind that You're Running a Business not a Charity

You're renting housing to make money and thats hard to do if you're too accommodating or forgiving with regard to late rent.    Its REALLY easy for landlords to be nice to tenants who are having financial difficulties by being lax on late rent.   Thats a natural reaction to want to be flexible for someone who's having a hardship.  But you really do have to remind yourself that you aren't running a charity and that you need to keep the business interests of your rentals in focus.  

Don't Be a Jerk

So this may go without saying, but its easy to get upset about something like late rent and you may unintentionally vent your frustrations on the tenant by being less than kind with them. 
As we just discussed, this is a business and businesses should be ran professionally.    You may be unhappy or even insulted that your tenants are late.   You should be professional and straight forward with your tenants. I'm sure your tenant didn't want to be late on rent and they do not enjoy the situation.  If you were late on a bill you wouldn't expect or want the lender to be a jerk about it would you?   Make sure to keep it civil and professional.

Don't Worry Too Much About the Reason

I've heard a wide variety of excuses for late rent.   A selection of reasons:    "Problem with the bank",   "Personal emergency",  "Car broke down",  and my personal all time favorite was "We had to buy grandma a big screen TV".      When it comes down to it the reason for the lateness really doesn't matter a whole lot. If a tenant gets too far behind in their rent then at some point they'll need to move out.   And if you accommodate it too far then you'll lose money.  If a tenant really is struggling with personal hardship then they aren't going to be able to afford the rent for very long and its in their best interest as well if they find alternative living arrangements.    So whether your tenant is simply irresponsible or they're perfectly responsible but having a hardship the end answer is the same that if they can't pay rent then they will need to move out.
Enforce Your Late Fees

Usually when tenants are late they will conveniently forget about the late fee policy they agreed to when they rented from you.   If a tenant calls and says they are late or if you have to chase them down to get an explanation then make sure to remind them that there will be a late fee due.    Generally I think its OK to give them a one time pass on the late fee for the first instance if you want.   But after that it really is important to enforce late fee rules with tenants.

The reason you need to enforce late fees is to give the tenant a reason not to be late.   When people are having trouble paying their bills they will usually pay the most urgent bills as a priority.  If theres no late fee on the rent then they may consider it less urgent due to there being no specific consequences of being late.   The tenant probably has multiple bills due and is going to pay other bills with fines or penalties before those that have no late fees.

Get a Specific Commitment from the Tenant

The tenants late on their rent will often tell you when they can pay.   But if they don't offer that information then you really need to request it from them.   Repayment "when I can"   is not acceptable and you really press them for a specific date.    If they can't or won't commit to getting the rent to you by a specific day then that is what I'd consider a red flag.   Sometimes they just need guidance and you may want to ask when they get their next paycheck and if they can at least pay you on their next pay day. If the tenant can't tell you when they'll pay then its likely they aren't sure how they'll get the money or really have no means to do so.   Occasional setbacks in paying bills is pretty command and easier to deal with but if a tenant has no real plan to get money to pay their rent then that is a much bigger problem.

Handling "The check is in the mail"

You've probably heard the term "the check is in the mail".    You may get this as the first response from a tenant.   Theres often not reason to doubt the truth of it and you may very well get the check tomorrow.. or the next day or the day after that.   I would remind the tenant that rent needs to be received on the due date not mailed on the due date and politely remind  them of the late fee.   If you do get the check then note the date it was mailed on the postmark and figure out how long it took to get to you and if it was mailed before or after the tenant said it was in the mail.   If they mailed it AFTER they said it was in the mail then note that for future reference.    If the check doesn't arrive then you've got clear evidence that the tenant was not telling you the truth and more aggressive action proceeding to eviction may be necessary.

Don't Let Tenants Get Too Far Behind

This part is really very important.   Once a tenant is behind on their rent its quite possible that they may not be able to get caught up.   If they are already living paycheck to paycheck and then they have a large expense that costs them to get behind they may not be able to come up with the money to get them back on track.   They may then continue to kick the can down the road and continually ask to make partial payments.   If this happens then before long they may be a little short on a future months and then "not have it all" another month and after a time you're all the sudden looking at a tenant that is behind 2-3 months worth of rent.   If you see a tenant getting behind more than a month then its time to take further action.

Handling Partial Rent Payments

A lot of the time a tenant will not have the whole rent check but they will offer to pay you part now and then the rest at a later time.   In general, I would agree to this arrangement (at least once).  Its better to have some money now than nothing later.   However you need to have specific details as to how much they'll pay and when it will be paid.   If a tenant gets behind too far then you'll need to demand full payment or move on to further action.    One reason you may not want to agree to partial payments is that it will generally stop you from eviction proceedings.  If you go to court and the court finds that you had an agreement for partial payment then the court may not allow the eviction because any agreement for repayment needs to be followed through on before you can have cause for eviction.   Agreeing to partial payment is an agreement with the tenant and you need to follow through on that agreement before you can evict.     For this reason I would be specific in the terms of repayment and not extend if they fail to meet the initial agreement.

Suggesting they Move out Or other Alternative

If a tenant gets behind more  than a month then its probably a good idea to ask if they should be looking for somewhere else to live.    I think its a good idea at this point to let the tenant know that you will agree to letting them out of the lease terms if they need to move.   It isn't like you're likely to get much money out of this tenant to enforcing the lease term is really not going to get you anything.   The tenant may feel obligated or trapped in the rental due to the lease term so if you let them know you'll let them out of the lease then that may open the door for them to look elsewhere.

The Security Deposit is Not a Rent Payment

Tenants who are late on rent and planning to move may expect you to use their security deposit to cover a rent shortfall.   Do not agree to this in advance.   If you let them use their security to cover unpaid rent then they won't pay the rent and may leave you with the bill to cover the cost of repair for any damages they caused.   You wouldn't agree to blindly refund a security deposit before a tenant moved out and without a final inspection of the rental would you?    If you agree to use their deposit for rent then thats in effect what you're doing.

Should you Accept Barter?  

Occasionally in rare instances you may have a tenant offer to do some work or try and settle payment by giving you their personal belongings.   Personally I'd avoid such arrangements but I think this one is really up to you.   If you need someone to mow the lawn and they're willing to do it for a couple months to work off $200 then that could be a good solution for you both.    However I'd keep in mind you're likely not getting professional work and there could be quality and liability concerns with hiring someone without demonstrated experience.  It can be hard to judge if the work you may get from a random tenant is really worth the money in question.  

When To Evict?

Of course you don't want to be a jerk and threaten to evict tenants at the drop of a hat.   But you are also running a business so at some point you'll need to take action on a severely delinquent tenant.  Eviction of course is the last resort but eventually it may be necessary.     I'd recommend talking to the tenant first to see what you can work out.   Suggest they move elsewhere and see how that goes.    If a tenant is resistant to moving and gets behind on rent then you definitely need to give them a Pay Rent or Quit notice sooner rather than later.   The Pay Rent or Quit notice is the first notice of eviction intention.   You need to give them this notice in order to proceed with eviction processes further if necessary.   The large majority of the time tenants will either pay rent or move out after getting the first posted Pay Rent or Quit notice.   If you delay on giving the Pay Rent or Quit then it simply delays or avoids moving forward.  It allows a tenant to get more and more behind and it delays eviction proceedings.    If a tenant fails to pay rent or arrange to move out after the Pay Rent or Quit notice then you need to move forward with eviction proceedings.


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