So far in our continuing series addressing Frequently Asked Property Management Questions, we’ve covered:
The next installment?
What Do I Do If a Tenant Consistently Pays Late or Doesn’t Pay Rent At All?
Another excellent question! And an issue that far too many retail landlords struggle with. But as common as this matter may be, it’s one of the more complicated problems to solve. More often than not, there isn’t one “ideal resolution.” The best course of action generally varies and depends on several key factors…
The Quality of the Tenant
Is this a tenant that’s typically reliable but happens to pay rent late on occasion?
Is this a tenant that pays rent, but consistently pays late?
Is this a tenant that pays late and is few months delinquent?
Or is this a tenant that has ceased to pay rent and is months behind?
The Frequency of Late Payments
Every couple of months?
Once or twice a year?
The Amount of Outstanding Rent Owed
How much back rent is owned…
A couple of months?
More than six months?
Over a year?
The Difficulty to Re-Leasing a Vacancy
If a tenant vacates, of their own accord or is evicted, how difficult will it be to release the space?
How Do These Factors Impact Your Decision-Making Process?
It really boils down to how you chose to address different tenant types…
A Quality Tenant with Rare or Occasional Late Payments
This is a tenant well worth keeping and worth keeping happy. Thus, charging a late fee is likely not in your best interest.
A Consistently Late Paying Tenant
This tenant definitely deserves to be charged and late fee. And late fees should be leveled until the tenant gets the message and pays their rent in a timely manner.
A Delinquent Tenant
Continually charging late fees is only adding to their balance, making it that much tougher to bring their account current, and pushing than that much closer to breaking their lease and vacating the space. This scenario comes down to whether or not you really want to keep the tenant. Either you organize a payment plan and offer incentives to help the tenant bring their account current. Or you take steps to evict the tenant.
A Tenant Occupying a Difficult to Lease Space
A tenant that consistent pays late or is delinquent but occupies a difficult to lease space may be worth keeping. In this scenario, it’s a matter of weighing the potential revenue the tenant’s occupancy implies verses being saddled with a space you’re unable to lease for years to come.
As you can see, there are several important factors to weigh in deciding how to deal with late, delinquent or non-paying tenants.
But regardless of the circumstances, there are tactics you can employ to ensure tenants (generally) pay rent on time.
Strategies to Avoid Late Rent Payment
The most effective method to avoid chronic late rent payments? Employing: “The Carrot and the Stick.”
In other words, rewards for “good behavior” (the Carrot), and punishment for “bad behavior” (the Stick).
But let’s flip the script and start with the Stick, as “bad behavior” is what generally brings this situation to a head.
The Stick… This can take the form of both threats and actual punitive measures.
Late fees are typically written into lease agreements. But such fees are exercised at your discretion. Thus, if a tenant is late once or twice, you can threaten to charge a late fee. If a tenant is late on multiple occasions, you can exercise your right under the lease and charge a late fee. And you can continue to charge late fees if a tenant’s late payments persist.
3-Day Notice to Pay or Quit
Here again, you can threaten to post a notice. And if this fails to impress your point upon a tenant, you can make good on your threat and actually post a notice to prove you’re serious.
To clarify, an eviction is a long, complicated, and difficult to navigate process that generally favors the tenants. One misstep in procedure or paperwork can completely foil your efforts and force you to start the entire process over again, from the very beginning.
As such, an eviction this should always be your last course of action. But both the threat and the exercise of an eviction action (at least initiating the process, but not necessarily carrying it through) can be a strong motivating factor that renders many tenants “scared straight.”
The Carrot… On the other side of the coin, you have incentives to motivate tenants to pay rent in a timely manner and keep their account current on a consistent basis.
Managing Late Rent
Let’s say a tenant has consistently paid rent late for 12 months. If that tenant can pay rent on time for 12 consecutive months, they will receive a 20% discount on their rent in the 13th month.
Or let’s say a tenant has consistently paid rent late for 6 months. If they can pay rent on time for 6 consecutive months, they will receive a refund of all late fees collected during the six months their payments were lagging.
Let’s say a tenant owes several months of back rent. If they are able to consistently pay rent on time for 12 months, a portion of the back rent will be forgiven on the 13th month.
Or let’s say a tenant owes a great deal of back rent. If they are able to consistently pay rent on time for 12 months, the landlord will agree to a payment plan in which the tenant can pay down the back rent without incurring any interest fees or additional charges.
These are just a few examples… There are a number of possible incentive programs to help keep tenants on track and up-to-date on their monthly rental payments.
Need Help Dealing with Late + Delinquent Tenants?
One of the key services professional property management provides is Tenant Relations Management. We’ll step in and deal directly with your tenants, taking the burden of frustration and stress off your shoulders.
And we’ll work with you to assess a given tenant’s situation, and make recommendations on when to take punitive action (administer the “stick”) and when to offer incentives (dangle the “carrot”).
For More Information on Professional Property Management Services
Visit our Services page at: cbm1.com/services