Charging Late Fees
Charging Late Fees: Utah Property Owner's Guide
Most landlords include some sort of late fee policy in their lease agreements in order to help ensure that tenants pay rent on time and in full. But each state has their own laws and regulations about late fees and how they can be utilized.
This is the complete guide to late fees for real estate investors owning property in Utah.
When Can Landlords Charge Late Fees in Utah?
The state of Utah allows landlords to charge late fees when rent is not paid on time, according to the agreed upon terms of the lease.
Is there a legal requirement for late fees in Utah?
Landlords in Utah may not charge late fees that are more than 10% of the agreed upon rent amount, or greater than $75.
The late fee policy must be outlined in the agreed upon lease terms in order to be legally enforceable, unless the rental agreement is month-to-month, in which case a 15-day notice of the charge is required.
Does Utah law require a grace period?
No, there is no grace period required in Utah. This means that landlords may choose to charge a late fee as soon as rent is past-due. However, a grace period may be outlined in the lease terms if the landlord chooses to do so.
Why You Might Consider a Grace Period
Grace periods allow for normal occurrences such as money being delayed in transit, tenants receiving their paycheck on the same day rent is due, due dates falling on a holiday or weekend, or rare occurrences when a tenant has to pay a day or two late.
While tenants should not expect to be able to always pay within the grace period, having one in place accounts for occasional things that don’t need to be addressed with official notices or burdensome late fees.
What about weekends and holidays?
Utah landlords should make it clear in their lease agreement what is expected when the rent due date falls on a weekend or holiday. As a general rule, most landlords allow rent to be paid the next business day following the weekend or holiday without being considered late.
We recommend this as a best practice. However, Utah landlords are not required by law to adhere to this standard.
What about partial rent payments?
The decision on whether or not to accept partial rent payments at all is somewhat debated in the property management industry. At Joseph Thomas, we believe there can be instances where it makes sense to accept partial payments.
If you choose to accept them, a partial payment is still not a full rent payment, so the tenant can still be subject to late fee charges. If left unpaid, eviction may still be a legal consequence. Your chosen policy regarding partial payments should be outlined in the lease agreement.
*Note: partial rent payments as described here are different from prorated rent payments, which are agreed upon by both landlord and tenant, and would not incur late fees.
How Much Can Landlords Charge for Late Rent in Utah?
As of May 2021, Utah landlords cannot charge a late fee that is more than 10% of the agreed upon rent or greater than $75.
At Joseph Thomas, our recommendation is to set late fee amounts in consideration of your local market, the type of renter and lease agreement you are after, and how willing you are to potentially go through the process of evicting a tenant that cannot pay rent in full, plus fees.
Types of Late Fees
For landlords that decide to charge late fees, there are a few different ways to go about it.
Daily Late Fee
The daily late fee is when a set charge amount accrues for each day that full rent payment remains unpaid after the grace period, if the lease allows for one.
Why it works
You can see that continuing to not pay rent in full can really add up. This type of late fee structure can be highly motivating for tenants to not be late on rent, and then pay in-full as soon as possible when late.
Why you may want to avoid
The daily late fee structure, when the daily fee is too high, can potentially create a situation where a tenant becomes unable to ever cover the rental amount plus fees because the charges have become too much. Then, the landlord is stuck without the money they are owed, and may need to go through the hassle of evicting the tenant. We recommend most landlords who choose to use daily late fees to set a daily amount with a maximum. In other words, the fees owed are capped at a certain, affordable amount. Of course, if the tenant still does not pay the rent or additional fees, eviction could still become necessary.
Flat Fee
Some landlords prefer to outline a flat fee structure in the lease for late rent payment. This would be a set amount that is immediately owed once rent payment is late.
Why it works
If the amount is considerable, it can serve as a great motivator for tenants to avoid late payments.
Why you may want to avoid
The amount owed for being 1 day late would be the same as the amount owed for being 12 days late, which doesn’t always seem reasonable. Sometimes, such charges may be thrown out if the matter ever goes to court.
Also, flat fees remove the tenant’s incentive to pay as soon as possible after they are late, since the amount owed remains the same.
Percentage Late Fee
Another way to charge late fees is to charge a set percentage of the rental amount. A common rate is around 5%.
The effect is essentially the same as charging a flat fee, but renters in different units who pay different rent amounts would then owe different amounts in late fees under this model.
Why it works
Paying extra money isn’t fun. Tenants will want to avoid late fees of any kind.
Why you may want to avoid
Like the flat fee structure, the percentage fee structure also eliminates the incentive to pay as soon as possible.
Combination Late Fee
Some property owners choose to implement a late fee structure that combines elements of the flat fee or percentage fee and the daily late fee.
For example, there may be a set charge of $40 once rent is late after the grace period, and then an additional $5 for each day the rent remains unpaid after that.
Why it works
You get the best of both worlds. The initial fee is heavy enough to deter tenants from paying late, and the additional daily fee incentivizes them to pay as soon as possible once they are late.
Why you may want to avoid
For tenants that struggle to pay rent on time, this late fee structure can put them into a situation where they are unable to get ahead on the amount they owe.
Tip for Utah Landlords
Even if your late fee charges are within the legal range, a court may still find a late charge unreasonable. Utah property owners should take the time to figure out what late fee amounts would be reasonable for their market.
Notifying Tenant When Rent Payment is Late
Your lease should clearly explain when/how rent is considered late (postmark date, payment actually received, etc?). When the rent payment is actually late, the first step is to notify the tenant.
It’s a good idea to get on the same page with your tenant as soon as possible. Perhaps they thought they paid, but there was an error in the system, or you made a mistake. Or maybe they are aware they are late, but they are waiting on some money and can tell you exactly when they will be able to pay, including late fees.
Notify the tenant and collect any contextual information available to help you decide how to proceed.
How Should Landlords Collect Late Fees?
Setting up online rent payment is a great idea for a number of reasons, including the fact that late payments can be automatically calculated into the system. Tenants can easily see the full amount owed, and be required to pay in full before the charge is cleared.
If you choose to collect rent payments or late fees by mail, be sure to keep the envelope that payment comes in, with the postmark and date received clearly indicated. If a tenant wants to dispute a charge later, you’ll have evidence of when it was actually sent.
If Your Tenants Consistently Pay Late
It’s not out of the ordinary for good tenants to occasionally have a late payment once in a while. That’s why grace periods are a good idea.
But for renters who consistently pay late, landlords should address the issue with them directly, so they don’t think that late payments can be an expected pattern.
You can explain to renters that rent payments are used to pay the bills that you owe on the property, like utilities and mortgage payments, which are also due at a certain time. You should have the payment schedule clearly outlined in the lease where you can point the tenant back to to re-establish expectations.
Be willing to listen to the concerns of your tenants. Perhaps they want to always pay rent on time, but there is an issue with rent being due on the first of the every month, and they could easily pay on time if it was changed to the 5th of every month. There may be something you can work out together.
If a Tenant Still Doesn’t Pay
If a tenant who is late on rent still doesn’t pay, then there are some choices to make as landlord.
While you have the right to begin a residential eviction process based on non-payment of rent, this may not always be the best choice, especially if the tenant hasn’t made a habit of missing payment due dates, or they are going to be difficult to replace in the current market.
Landlords need to decide if it is better to let late fees build up and continue to seek payment from the tenant or begin the eviction process. To help make this decision, we recommend consulting your legal counsel.
Important Things to Remember
Always be aware of local laws regarding tenant-landlord agreements and regulations on things like grace periods, late fees, etc.
Remember that real estate investing is the most rewarding when you can maintain a positive relationship with tenants built on mutual understanding and trust.
State Things Clearly in the Lease
Whatever your policy is when it comes to late fees, grace periods, payment methods, etc., these details should be clearly outlined in the lease or rental agreement.
Be Consistent
Late fee policy must be applied consistently across all cases, otherwise tenants may have grounds for accusing you of discrimination. It can be difficult sometimes to remain firm on policy for a tenant you want to help, but you need to remain consistent.
Waiving Late Fees: A good idea?
We at Joseph Thomas do not advise our Utah property owners to waive late fees.
Again, this can be difficult in situations where landlords feel sympathetic to tenants who are struggling. However, waiving fees opens the door to potential accusations of discrimination by other tenants, or conflict down the road when the same tenant expects fees to be waived again.
Tenant Management Services in Utah
Joseph Thomas serves Utah property investors in managing their property and handling tenant management duties such as rent collection.
Let us know how our property management services can make your real estate investing run smoother. We’re ready to get to work for you!
Joseph Thomas does not provide legal, tax, or investment advice. We recommend the reader consult their attorney, accountant, and/or financial advisor before making any personal investment decisions.
