Commercial Lease Late Fee: Everything You Need to Know
When a commercial lease late fee has to be charged, it means a renter has failed to pay on time.3 min read
2. Rental Contract Stipulations
Updated October 28, 2020:
When a commercial lease late fee has to be charged, it means a renter has failed to pay on time. As the landlord in a situation like this, you may charge a late fee or penalty. The late payment penalty on a commercial lease is usually calculated as a five to 10 percent of the rental amount. It can also be a flat fee.
Usually, a late fee can only be charged if the original lease agreement provides for it. If your lease has no late fee clause, you can't suddenly expect your tenant to pay a fee next time he or she is late in paying the rent.
The Maximum Amount to Charge
The issue of how much you can charge as a late rent penalty depends on local and state legislation. Whether you choose to charge a flat fee for every day that the rent is late, or whether you charge a set percentage of the rental amount, there is a maximum amount that you are allowed to charge every month. According to most courts, this amount needs to be kept reasonable, which means less than 10 percent per month.
Generally speaking, as a landlord, you will need to give your tenant about five days' grace before considering the rent payment late. While the courts will stipulate that you charge no more than 10 percent per month, the general advice is to use caution and charge only five percent.
The laws about payment of late fees also stipulate when you can implement these fees. In some states, a landlord may charge this fee on the first day after rent was due. In other states, a grace period is necessary, and such fees can only be charged at the end of this grace period.
As a tenant, it's important to remember what date your rent is due and to pay on time. You may not accrue a late fee if you pay within the grace period, but every late payment is still a form of legal delinquency.
Rental Contract Stipulations
Every rental contract should lay out all the terms and conditions relating to rent payments. This should include a policy about late payment. Your agreement should stipulate the following:
- The amount of rent due every month.
- The day of the month on which rent is due.
- The procedure to follow if the day rent is due happens to be a Saturday, Sunday, or holiday.
- How and where rent should be paid.
- The date on which payment will be considered to be late.
- The consequences if rent is paid late.
- The consequences if rent is not paid at all.
- Details on the termination of the commercial lease.
- Any state statutes that are applicable to rent payments or the charging of late fees.
It's recommended that you ask an attorney who is familiar with the laws about the relationship between a landlord and a tenant in your state to look over a lease agreement before you sign it, either as a renter or as a tenant. Disputes about rent payments are common, and it's important to understand landlord/tenant laws, to adhere to lease terms and to make sure that you charge a late payment fee from the very first time a tenant pays you late. If he or she finds that they can get away with it, then late payment will become a habit.
If you have been sympathetic toward a tenant and have not been charging a late fee, you need to get out of this habit. Send an official letter to your tenant and explain that the next time rent is late, a late fee will be charged as detailed in the lease agreement that he or she signed.
If you realize that your tenant is consistently paying late, have an honest conversation with him or her about it. You may find that there is a legitimate problem, like a tenant regularly receiving money from his or her clients after the rent is due. In a situation like this, you would not be obliged to change the terms of your lease to better suit their needs, and you would still be able to charge late fees. However, you will have a good understanding of the situation and why payment is regularly late.
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