How Tenants Turn a Lease Into a Revolving Line of Credit

by Chris on February 4, 2013

One of the most frustrating problems for a landlord is the tenant who habitually pays rent late.

Unfortunately, the lease agreement or management policies can contribute to this issue.

Once a tenant catches on to the game, they may repeat it month after month, causing headaches and income loss.

One way tenants accomplish this is by exercising the grace period that may be contained in the lease agreement.

Chances are, they had to pay late once, and soon learned that the only consequence is paying a late fee.

State landlord tenant laws limit these fees to a nominal amount. In fact, to enforce the fee, a landlord typically has to show the amount charged matches the actual out-of-pocket loss for late rent.

A lease may provide for a hefty late fee as a deterrent, but these excessive late fees usually are not enforceable if the matter goes to court.

Once the tenant gets it, they’ll use the landlord like a revolving line of credit — live free for a few days while they apply the rent money to some other pressing bill, like the cellphone, or take it to the limit by living rent free until the landlord can finally get them evicted.

And of course, if the tenant pays the rent just before the end of the grace period, there is little or no consequence.

Landlords lose money every time they have to chase down the tenant, send notices, or file for eviction, only to have the tenant pay just under the wire.

The same thing happens when a landlord doesn’t do enough to rein in a tenant who pays late. The first time it happens, many landlords will give the tenant the benefit of the doubt. Unfortunately, a tenant may exploit that goodwill by continuing to pay rent later and later each month. In one case, the tenant got so lax at paying on time that he fell a full month behind, ┬ábut was allowed to stay in the property.

Don’t become a tenant’s easy-money banker. Look for ways to nip the problem in the bud:

Consider automated rent payment methods where the payment is deducted from the tenant’s bank account or credit card on a particular day;

If possible, accept electronic checks or credit card payments in lieu of mailed checks;

Avoid offering a lengthy grace period for rent collection. Don’t count on a late payment process to deter late-paying tenants.

Sign the tenant up to Report Tenant Pay Habits. Not only will this offer tenants an incentive to pay on time, but it will assist a tenant who is trying to establish a stellar rental history by earning a Certificate of Satisfactory Tenancy at the end of the lease.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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