November 11, 2014
Responding To Late Rent Payments
So you’ve done your homework; screened the tenant thoroughly, looking at their credit history, spoke to their previous landlords, and even checked to see if they have had any previous evictions. But even after all of that, you find that the tenants are now starting to pay their rent late. What now?
There are many different reasons why a tenant may not be paying their rent on time. Maybe their car broke down, a friend or family member lost their job, , or maybe they were away on a trip and the payment got lost in the mail. Whatever the reason, two important things to both the owner and tenant should consider are:
- Things happen in our lives which are beyond or control and sometimes these events may justify a late payment
- A lease is a binding agreement and personal matters generally does not automatically give someone an extension on their monthly rent payment unless arrangements were made in advance
The initial response can be very important because it can come back around later on if you try to evict the tenant. If the tenant calls ahead of time, try to determine the reason why they are going to be late, see if they can provide some form of documentation to back up their reason, and find out when they can pay.
It’s important to try and create an open line of communication between you and the tenant. Be clear and concise making sure that you are letting the tenant know what you can and cannot accept in terms of their late payment. Also make sure you are documenting your conversations by either sending a follow up “Per our conversation” email or putting a memo in their file with the time and date of the conversation along with a summary of what was discussed.
While we all prefer to get the rent paid all at once, it may not be possible for a tenant to do so. Creating payment plans can provide an excellent alternative. Be sure to review the local laws. For example, in Hawaii, a landlord can put a tenant on notice and continue with the eviction process even if they accept a partial rent payment. However, in Nevada, once you receive any form or payment, the landlord has to restart the eviction process and send out new notices. This doesn't mean payment plans are not possible, but it’s something that should be taken into consideration.
Typical payment plans consist of a partial payment up front with the remaining balance paid the following week or pay period. Try to see if you can obtain documentation showing when the tenant’s pay period is in order to verify if needed. Other forms of payment plans could be to prorate the missing balance over a period of several weeks or months. For example, if the tenant is short $300, but they can commit to paying an extra $100 for the next 3 months to make up the difference, then this may be something to consider. Of course you will want to make sure their lease won’t expire first.
A final thought on payment plans is to make sure that the tenant is able to pay the following month’s rent payment. It doesn’t do any good to collect this month’s rent if you are going to have the same problem next month.
Modifying Lease Terms
In certain cases a tenant can no longer afford to make the monthly rent payment. Whether it be a loss of income due to divorce, illness, or a lost job, landlord need to keep an open mind so they can try to be understanding when certain life events affect a tenant’s ability to pay their rent. As a property manager, my goal is to protect the interest of the owner. In some instances, they may include making some concessions with the tenant by modifying the lease terms.
For example, in a high rent environment such as Honolulu, Hawaii, a change in jobs could significantly affect a tenant’s ability to pay rent. If rent for a 2 bedroom condo was $2500, and the tenant’s income dropped by $150 a month, it may be in the landlord’s best interest to adjust the monthly rent amount, pending verification of the tenant’s income of course. Over a 1 year period, $150 per month amounts to $1800. When a property goes vacant, it will usually be empty for at least 2 weeks in Hawaii to transition it over to the next tenant, which is about $1250 in lost rent. In addition, the landlord will most likely need to do some painting and caulking along with some other minor repairs averaging around $600. Usually these types of repairs could have been postponed until later on if the property was not vacant. The estimated cost of the vacancy is $1850 without factoring other costs such as leasing fees and utility bills.
While the landlord may not have saved money by reducing the rent by $150 per month, it would have avoided the risk that the property could have been vacant longer then a 2 week period or that the next tenant may not take good care of the unit. This example assumes that the existing tenant is overall a good tenant who generally pays their rent on time, takes great care of the property and has no neighbor complaints.
Modifying lease terms will not apply to a lot of situations, but it is a valuable tool and something that landlords should take into consideration as it could prove to be beneficial in the long run. Remember, this is a negotiation tool so there are a variety of different options available such as a temporary reduction in rent only lasting for a specified period of time, or removing services such as a monthly yard service in exchange for lower rent.
Terminating the Lease
Another option is to have the existing tenant turn in the keys and terminate the lease agreement. The main benefit here is that you can potentially avoid an inevitable eviction which can save money on the cost of the eviction as well as cleanup costs. When a tenant is evicted, the property is generally left dirty with a lot of trash and sometimes personal belongings. This can be costly to clean up. In addition, while the security deposit can be used towards the eviction costs, after factoring all the other costs such as damage and cleaning, the total amount owed by the tenant could very well exceed the security deposit which means the landlord has to cover the difference. By cutting down on these costs, it can help save the property owner money in the long run
Evicting the Tenant
No one ever wants to have to go through an eviction, however as a property manager, it’s something that we have to be prepared to face and every landlord should be aware that this is always a possibility. Even with the best of tenants, if they fall into hard times, you may end up having to evict them.
Here are things to expect when evicting a tenant:
- This process generally takes weeks or months, so property owners should be prepared to cover the expenses for their rental during this period.
- When evicted, the tenant will generally leave the property very dirty and often times leave behind a lot of their personal belongings. Each state is slightly different when it comes to disposing of the tenant’s property. For instance, in Hawaii, the landlord has to wait 15 days after providing notice to the tenant of their intention to dispose of their belongings while in Nevada, property owners must wait 30 days.
- The locks will need to be re-keyed at the time the tenant is evicted. Sometimes the sheriff arranges for the locksmith while other times it’s the landlords responsibility. After the eviction has taken place, it can take a couple days or a week to get the keys.