How to Calculate a Late Fee for Overdue Rent

Download our free Late Rent Notice Template

Key Takeaways

• Most states allow late rent fees if disclosed in the lease with the rent due date, grace period, and late fee amount.
• Flat fees, percentage fees, and daily penalties are common late rent fee structures, each with pros and cons.
• Minimize the risk of late payments with Apartments.com’s tenant screening reports and online rent payment system.

As a landlord, dealing with late rent payments can be a hassle. Knowing how to calculate a late fee for overdue rent is essential. It covers your costs and encourages on-time rent payments.

This guide explains how to calculate late fees legally and fairly. We’ll cover legal limitations, best practices, and strategies for encouraging timely rent payments. We will also touch upon grace periods.

Table of Contents

• Understanding Late Fees and the Law
• Common Late Fee Methods
• Best Practices for Avoiding and Handling Late Fees
• FAQs

Understanding Late Fees and the Law

Charging late fees is legal in all 50 states if clearly defined in the lease. However, state laws might require a grace period during which you cannot charge a late fee or deliver a notice to quit, and many states set maximums for late fees.

Failure to follow legal requirements can render the fee unenforceable or result in legal action against you.

States with late fee laws

The following states have legislation regulating late rent grace periods and fees. While the states not listed below don’t have statewide legislation around grace periods and late fee limits, cities may have their own regulations.

State	Grace period	Late fee limits
Alaska	No statute	Automatic late fees are only legally enforceable if they have been agreed upon beforehand
Arizona	Five days	$5 per day from rent due date
California	No statute	Lease must have a provision for late fees, and late fees must be a reasonable estimate of loss
Colorado	Seven days	$50 or 5% of past due rent, whichever is greater
Connecticut	Nine days for standard and month-to-month leases, four days for week-to-week leases	$5 per day up to $50 or 5% of total rent due, whichever is smaller
Delaware	Five days, eight days if landlord doesn’t have an office in the same county as the rental	5% of monthly rent
Florida	No statute	$20 or 20% of monthly rent, whichever is greater
Hawaii	No statute	8% of monthly rent
Iowa	No statute	$12 per day or $60 per month for monthly rents $700 or less, $20 per day or $100 per month for monthly rents over $700
Maine	15 days	4% of monthly rent
Maryland	No statute	5% of rent due for standard and month-to-month leases, $3 per week up to $12 per month for week-to-week leases
Massachusetts	30 days	No statute
Minnesota	No statute	8% of overdue rent
Nevada	Three days	5% of rent
New Jersey	Five days	No statute
New Mexico	No statute	10% of rent, and landlord must give tenant notice
New York	Five days	$50 or 5% of monthly rent, whichever is less
North Carolina	Five days	Standard or month-to-month leases: $15 or 5% of monthly rent, whichever is greater Week-to-week leases: $4 or 5% of weekly rent, whichever is greater
Ohio	Three days	No statute
Oregon	Four days	Late fees must either be a reasonable flat rate, a reasonable daily accrual rate, or a maximum of 5% of rent
Tennessee	Five days	10% of overdue rent
Texas	Two days	12% of rent for a unit in a building with four units or less and 10% of rent for a unit in a building with more than four units, or no more than the direct and indirect costs of late payments
Utah	No statute	$75 or 10% of rent, whichever is greater
Virginia	Five days	10% of rent or 10% of outstanding balance, whichever is smaller
Washington	Five days	No statute
Washington, D.C.	Five days	5% of total rent due

It’s important to note that city-level laws may further specify grace periods and fee limits. Always check your local laws to make sure your lease is compliant, or your late fees will not be legally enforceable.

Common Late Fee Methods

Unless your local jurisdiction has specific laws around calculating late fees, you’re free to set your own late fee, within reason. Here are a few common ways landlords calculate late fees.

Method	Description	Pros	Cons
Flat fee	Fixed dollar amount	Easy to understand	May be unproportional to rent
Percentage of rent (e.g., 5%)	Scales with rent price	Proportional to rent	High rent=high penalty
Daily accrual	Fixed dollar amount per day late	Incentivizes faster payments	More complex to calculate

Flat fees

A flat fee is a fixed dollar amount charged regardless of how much rent is and how late rent is.

For example, if the late fee is a flat fee of $50 and a tenant pays their $1,000 rent seven days late, they will pay $50 in late fees. If a tenant pays their $1,500 rent 10 days late, they will still pay $50 in late fees.

Percentage of rent

The percentage method is a scaled amount, usually 5-10% of the monthly rent price. This method is fair because it ensures that the late fee is proportional to the rent.

For example, if rent is $1,500 and the late fee is 5% of the rent price, the tenant will pay a $75 late fee.

Daily accrual

The daily accrual method charges a specified dollar amount per day that rent is late. This scales the penalty to the tenant’s payment lateness, incentivizing tenants to pay their outstanding balance as soon as they receive a late rent notice.

For example, if the late fee accrues at a rate of $5 per day and the tenant pays rent 7 days late, they will pay a $35 late fee.

Make sure your late fees never exceed your state’s legal limits, even if your tenants agree to pay them. Late fees that go against state and local laws are legally unenforceable.

Best Practices for Avoiding and Handling Late Rent

Screen renters thoroughly

You can avoid a lot of common tenant issues by properly screening renters before they sign the lease. Looking out for red flags like a low credit score or a history of evictions can weed out risky tenants who are likely to miss rent payments.

Apartments.com partners with TransUnion to give you a comprehensive screening report that shows an applicant’s income-to-rent ratio, eviction history, criminal history, and credit report. The screening report also includes a TransUnion ResidentScore, a variation of a credit score designed to predict an applicant’s ability to pay rent. This makes it easier for you to evaluate applicants and find the best fit for your rental.

Include a clear clause in the lease

You cannot enforce a late fee if it’s not in your lease. Clearly state when rent is due, late rent grace periods, and the amount you charge in late rent fees. Include additional specifics like late fee calculations for partial rent payments and extenuating circumstances like job loss or unexpected medical bills.

Offer multiple payment options

Be flexible in how you collect rent. Offering multiple payment options can make it easier for tenants to pay rent by allowing them to choose the best fit for their lifestyle, which can help minimize late rent payments.

Apartments.com makes it easy to collect rent online and even easier for renters to pay rent. Tenants can set up autopay on their Apartments.com dashboard so they never miss a payment.

Send rent reminders

Sending monthly rent reminders a few days before the rent due date is a great way to avoid late rent altogether. Unless your tenants set up autopay, it’s easy to lose track of time and forget to pay rent. A friendly rent reminder message via email, text, or Rental Manager Messages can minimize the risk of your tenant missing payments.

Issue late notices promptly

If your tenant hasn’t paid rent after the grace period, immediately send them a written notice stating how much they owe in late fees and rent and how many days they have to submit payment before you pursue legal action.

A late rent notice should look something like this:

[Property Address, Unit Number]

[City, State, Zip]

[Today’s Date]

             

Dear [Renter Name],

Please note that your rent is past due, and late fees have been applied. Your new total amount due is as follows:

Total late fees due: [Amount]

Total rent due: [Amount]

Please submit your payment within [Number of Days] days of this notice, or you may be subject to lease termination and legal action.

 

Sincerely,

[Your Signature]

[Your Full Name]

[Your Phone Number or Email]

Download our free Late Rent Notice Template to help you get started.

Understanding how to properly calculate and enforce late rent fees is essential for effective (and legal) property management. Always ensure your approach aligns with state and local laws and that fee structures are clearly outlined in the lease. This protects you legally and ensures transparency with tenants. Clarity and fairness go a long way in encouraging timely rent payments and fostering a respectful landlord-tenant relationship.

This article is for informational purposes only and does not constitute legal, financial, or professional advice. For guidance specific to your situation, you should consult a qualified attorney or other relevant professional.

 This article was originally published on June 17, 2022, by Megan Bullock.

 

FAQs

Can I charge a late fee the same day rent is due?

No. Most states require a three- to five-day grace period before you can apply late fees.

What if my tenant pays part of the rent?

If your tenant still has an outstanding balance after the rent payment grace period, you may apply a late fee based on the unpaid balance, depending on lease terms.

Is a late fee taxable income?

Yes, late fees are considered rental income and must be reported when you file your tax return.

Can I waive a late fee once?

Yes, you can waive late fees, but it can be a slippery slope. Waiving late fees might set the expectation for leniency in the future.

Try to reserve waived late fees for unforeseen circumstances, like your tenant losing their job. If you choose to waive a late fee, document it and make sure you apply the same rule to all tenants.

Can I deduct late fees from the security deposit?

Yes, in many cases. If permitted by state law and the lease, landlords can deduct late fees from the security deposit instead of charging the tenant directly.