Grace Periods and Why You Should Not Offer Them

by Jerry Fernholz Rentables Founder and CEO
Jerry is a rental property investor who founded Rentables out of frustration with the tools available to local property managers. He is obsessed with streamlining the property management process through... More
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A couple weeks ago we posted an article about charging late fees.  In this follow-up post we discuss offering grace periods to tenants and why we don’t think you should allow grace periods.  Certain states require a grace period in a lease agreement, therefore be sure to always check your states’ real estate laws to ensure you are abiding by them.

When do you pay your bills?

Odds are that for your bills which offer you a grace period, you probably wait until the grace period is up to pay them since there is no consequence.  However, for bills that don’t offer you a grace period I bet you pay them on or before the due date.  

Simply put, a grace period is a delayed due date. When you provide a grace period expect the end of the grace period to be treated as the due date.

You Were Hired to Collect the Rent

Now let’s think about grace periods from your customer’s (aka the property owner) point of view.

People hire property managers primarily to ensure rent is collected in a timely manner.  By offering tenants a grace period you’ve essentially delayed the rent proceeds for the owner. By eliminating grace periods you’ll make your owners happier.

If you don’t allow grace periods you can still make exceptions

Choosing to not offer a grace period doesn’t mean that you can’t give your tenants a break.

Let’s say you have a top notch tenant who has always pays rent on time, maybe even a couple days early sometimes.  Then one month they come into your office to pay rent a day late, regardless of the reason, maybe they just forgot or they are dealing with an unexpected family situation.

In this case you’ll probably want to use your judgment and maybe even give the tenant a one time grace period and not charge them a late fee.  This will probably be a relief to the tenant who was probably already kicking themselves for forgetting to pay rent.

It's important to not discriminate (or even appear to). For this reason, you should have a written policy for when exceptions are allowed and strictly follow that policy.

Keep Your Owners Informed

If rent is going to be late you should keep the owner informed.  They might be a little unhappy about receiving rent late; however, you can explain that the benefits in offering this grace period and late fee waiver increase the probability of the star tenant staying around longer which will benefit both you and the property owner in the long run.

Tracking late fees and grace periods

Late fees and grace periods should be clearly stipulated in the lease agreement.  As previously, mentioned some states have laws about late fee amounts and require grace periods.  When a tenant is late paying rent, this results in more work and stress for you:

  • You might have to draft a pay or quit notice
  • You have to follow up and see if the tenant plans to pay rent
  • You have to look up the details of the lease to see the terms of the late fees/grace periods

All these unexpected extra tasks take away time from your already busy schedule.

One way to streamline your job and gain back some time is to use a property management automation system like Rentables.  These allow you to set the late fee and grace period for each lease. If rent is not recorded in the system by the due date then a series of events, such as charging the late fee, automatically trigger and the late fee appears as a charge in the system – saving you from having to manually look up the lease, determine the late fee amount, and then charge the late fee.

 

 

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