Your residents pay their rent late because you have trained them to pay that way. Your rent collection techniques are lax, and your residents are all too aware of your procedures. Many residents live paycheck to paycheck, and will wait until the last possible moment to pay their obligations. Your residents apparently know that you “try and work with them” and that you don’t even start looking for the rent until the tenth. Your phone calls and reminder notes are nice but not legally sufficient to ensure timely payment. Your residents know the drill, phone call, letter, and then the notice. They pay when they absolutely have to in order to avoid being evicted. A tighter rent collection policy, coupled with a good rental agreement will eliminate your problem of late payments. Consider using a rental agreement, which includes a properly drafted late charge provision. It is important to note that not all late charge provisions are enforceable. The language used in the agreement must characterize late charges as “liquidated damages,” that is, it must state that the damages sustained by the landlord are difficult or impossible to ascertain, and that the parties agree that a certain sum, the late fee, is the amount of compensation due the landlord. Your rental agreement will define when the late fee is incurred. Typically, the late fee is incurred if rent is not paid by the third of the month. Remember, this clause does not provide a “grace period” to the resident; it merely defines when the late charge is incurred. Late charges must not be punitive, but must reasonably relate to the costs incurred by late payments. Don’t charge a variable fee, one that increases by a certain amount each day the rent is late. Although the law is silent on the subject, courts generally allow late charges of 6% of the rental installment. Additionally, consider adding a clause in your rental agreement requiring the resident pay a “notice service fee” in the event the landlord consults an attorney and serves a notice of default. Again the fee must be reasonable rather than punitive. If your primary goal is to just get the rent paid timely, you should send all of the residents a notice reminding them of their obligation to pay their rent on the first of the month, and they should budget accordingly. Let them know that you intend to strictly enforce the terms of the rental agreement. If you have allowed the late payments over a long period of time, provide the residents at least thirty days warning of your intentions. Late rent payments in a rent-controlled unit are opportunities for vacancy decontrol. Rent controlled jurisdictions require aggressive rent collection techniques and strict enforcement of the terms of the rental agreement. If the rent is due on the first, and the first falls on a weekday, a three-day notice should be served immediately, on the second of the month. Failure to pay the rent in full by the expiration of the notice will support an eviction. Remember, you set the tone for your buildings. If you allow your residents to ignore the terms of your rental agreements, you can be assured that they will do just that.
It is generally not a good business practice to accept cash or third party checks as payment of rent. With cash you run the risk of theft or robbery. With third party checks, you run the risk of creating contractual rights or tenancy rights between you and the maker of the check. Also be aware that under certain conditions the third party maker can stop payment on that check and your account will be charged up to two years after the check is cashed. Additionally, unless your rental agreement has a specific provision requiring the tenant to pay by certified funds only when curing a three-day notice, then your refusal to accept a personal check during the notice period would provide a defense to the tenant in an unlawful detainer action.
First things first, figure out what you know and what you don’t. Establish individual tenancy files, one per unit. Based on the limited information you have, write down the names and ages of the occupants, the terms of the rental agreement, written or oral, lease or month to month, rental rate, deposit on file, date paid through. Compile whatever contact information you have, home phone number, work and cell number. Design a “tenant emergency information sheet” that includes spaces for the following: names of all occupants, home and cell phone numbers for each occupant, work phone numbers, email addresses and detailed vehicle information. Visit the building about dinnertime, most residents will be home, and go door to door and meet briefly with the occupants of each apartment. Spend a few minutes confirming the information in your files, and gathering any missing information. Ask the residents to complete the “tenant emergency information sheet” while you are there in case of emergency. You will find that the vast majority of your residents will co-operate fully and provide the requested information. Residents are generally eager to please, and since the relationship is still new, there should be no animosity or distrust. This is also a good opportunity to find out the condition of each unit, simply ask the residents if there are any issues that need addressing, better to find out now and have an opportunity to address the needed issues, than to allow conditions to worsen, and your relationship with the residents as well. This is also an opportune time to prepare new month-to-month rental agreements for signatures. You don’t know the players yet, so you certainly don’t want to do fixed term leases. The few residents who are less than co-operative will be quickly identified as your “problem residents” and can be handled individually. Names and contact information of the uncooperative ones can generally be gathered from the other residents, or from public records. If the property is non rent control, and a month to month tenancy, the rental rate and term can be set with either a thirty or a sixty day notice of change of terms, depending on the extent of the change.
Seems logical, save a stamp for the tenant, save a trip to the bank for you. This practice has worked just fine for some landlords that have tried it, but has resulted in disaster for many. In a perfect world, your perfect tenant will deposit the entire rental amount promptly on the first of each month, each and every month without fail. For all of those landlords whose crystal ball tells them that this is the tenant that will never fail, never have a problem, then those landlords may consider this practice. For the rest of us, in this imperfect world, there are unlimited ways that this practice can go wrong. Consider when your tenant doesn’t pay the rent when due. You serve a three-day notice for the monthly rent, say $1200. On the third day, not having all of the rent, your tenant deposits $50 to your bank account. You just took a partial payment, thereby voiding your three-day notice, back to square one. What if the deposit of $50 is the day before your unlawful detainer trial? Same result, you accepted a partial payment, voiding your notice and defeating your court action. For these and many other reasons, this is not a good management practice. Sure you could close the account when you serve your notices, or you could state on your notice that no partial payments will be accepted, and the tenant is not authorized to deposit any funds after expiration of the notice, but you would have to strictly enforce this procedure, and not waiver from consistent application of the policy. If you are going to allow direct payments to a bank account, then open a separate and distinct account, separate from your general accounts, prepare specific written instructions regarding the procedure. Specifically state that no partial payments are authorized, and that no payments may be made following issuance of a three-day notice, or other termination notice, without your specific written agreement. Further, you only want ‘good funds’ deposited into your account, no third party checks, or checks payable to your tenant drawn on another’s account.
Provided your property is not located in a rent or eviction controlled area, then you do not have to provide a ‘reason’ for non-renewal. Provided your desire is not based upon illegal discrimination and is not in retaliation for the resident exercising a protected right, then you are free to ‘not renew’ the lease. Generally, a fixed term lease expires on a certain day. Provided there is no language in the lease that “automatically” converts the lease to a month-to-month tenancy, then the resident is required to vacate on or before the lease expiration date. Neither the tenant nor the landlord is required to serve any prior notice. However, most industry lease agreements used by landlords include an automatic conversion provision that states that the tenancy automatically converts to a month to month tenancy unless a written notice of termination was served by either the landlord or the tenant. In this event, a written notice of termination would have to be served to terminate the resident’s tenancy.
Rather than increasing security deposits and requiring all of the residents to come up with several hundred dollars that they certainly didn’t plan on paying, consider a small rent increase instead. Rent stays with the owner, while deposits are just held for the tenants benefit. A $50 monthly rent increase will result in an additional $300 in rental income to the owner over six months, and will be easier on the residents than paying an additional $300 in security deposit right away. Since your tenants have been there for ‘many years,’ I suspect your rents may be a bit under market, and a relatively modest increase in rent will not be unexpected by your residents.