How to Properly Charge for Late Payment of Rent
If you’re like most assisted site owners and managers, you probably charge late fees when residents don’t pay their rent on time. Charging late fees is a good way to avoid late rent payments and recover the administrative costs of dealing with them. But HUD has specific rules on how and when you can charge late fees to residents. Here are answers to questions you may have about charging late fees.
Q Do I have to give residents a grace period before I start charging late fees?
A Yes. HUD Handbook 4350.3, par. 6-23(C) says that you can charge a late fee after a five-calendar-day grace period. This means you can begin charging a late fee on the sixth day of the month if rent is due on the first of the month. But the late fee covers the resident’s failure to pay rent as of the first of the month.
Limit on Amount of Late Fees
Q Is there any limit on the dollar amount of late fees I can charge to residents who pay their rent late?
A Yes. Late fees may not exceed $5 for the first though the fifth day that the rent isn’t paid, plus $1 for each additional day it remains unpaid, for a monthly maximum late fee of $30 [Handbook 4350.3, par. 6-23(C)].
Late Fees at Elderly Sites
Q Can I charge late fees at sites that provide affordable housing for the elderly or for persons who experience disabilities?
A No. Owners of Section 202/8, Section 202 PAC, Section 202 PRAC, and Section 811 PRAC projects cannot charge fees for late payment of rent [HUD Handbook 4350.3, par. 6-23(B)]. The Section 202 program funds development of affordable housing for elderly households. The Section 811 program provides non-profits with funding to provide supportive housing for disabled, very and extremely low-income persons.
Higher Initial Late Fees
Q Instead of assessing late fees in small $1 per day amounts, as the HUD Handbook describes, I would like to wait, then charge a larger initial late fee. Can I charge more than $5 as an initial late fee?
A Yes. If you get approval from a HUD field office or contract administrator, you can wait, then charge an initial late fee of more than $5 [HUD Handbook 4350.3, par. 6-23(D)]. But the total late fee for any month can’t exceed $30. For instance, to simplify its accounting and record keeping, the company waits until after the 10th of the month and then charges an initial $10 late fee. It charges another $20 late fee after the 20th of the month.
Eviction for Not Paying Late Fees
Q Can I evict a resident who pays her rent late but doesn’t pay the late fees?
A No. You can’t evict a resident for not paying late fees [HUD Handbook 4350.3, par. 6-23(F)]. But late payment of rent is a minor violation of the lease, and you can evict for repeated minor violations. Check with your attorney if a resident has been late with the rent often enough to justify evicting him. And if you do evict him for repeatedly paying his rent late, you can ask the court to order him to pay any outstanding late fees.
Deducting Late Fees from Security Deposit
Q Can I deduct unpaid late fees from a resident’s security deposit?
A Yes. HUD says that you can deduct any accrued and unpaid late fees from a resident’s security deposit at move-out, if state or local law permits it [HUD Handbook 4350.3, par. 6-23(E)].
Waiving Late Fees
Q Occasionally, longtime residents who pay their rent on time will slip up and pay late one month. Can I cut them a break and waive the late fees?
A No. It’s not a good idea to waive late fees, even for a resident who has a good payment history. Bending the rules for one resident could be construed as playing favorites with late rent charges and discrimination by other late-paying residents who have to pay late fees.