Should You Accept Partial Payments as a Landlord
Posted on Sunday November 29, 2020 at 09:54AM in General
Should you accept partial payments or late payments?
When owning or managing a property you will inevitably have at least one tenant ask to make a partial rent payment. Sometimes it can be difficult for tenants to pay their full rent amount for various reasons such as losing a job or having large medical bills. In this situation, you would like to be understanding, but not create a habit of always accepting partial payments. As a landlord, it is important to decide when you can accept partial payments from your tenants.
What are partial rent payments?
A partial rent payment is when a tenant asks you if they can pay only a portion of their monthly rent amount. For example, if your monthly rent is $2,500 and your tenant pays you $1,000, then that is a partial payment.
Are partial payments considered late?
As a landlord, you should consider partial payments made after the rent due date plus grace period as late payments.
What do you do if a tenant isn't paying rent on time?
Most landlords establish a set process. Below is an example:
- Talk with the tenant to find out why their rent is late and if there are extenuating circumstances such as losing a job or medical bills
- Consider if this is the first time rent is late
- Most landlords automatically add a late fee after the due date plus grace period expires. If you don’t add late fees to these payments, then there is no consequence for tenants and they may continue to make late partial payments regularly. You can always waive a late fee if there are extenuating circumstances.
- Post a 3-day collection notice, which notifies the tenant that rent must be paid or you will continue the court process resulting in an eviction. State and local laws differ regarding the timing and notification requirements.
- Talk with the tenant again and find out their intentions. While court action is always a potential, it is typically the last choice. It is often much better to work out payment terms or agree upon a move-out schedule directly with the tenant instead of going to court. Remember that you are running a business and it may be better to waive rent/fees or even pay a tenant to move out instead of going through the eviction process which may take longer and result in no additional money being paid by the tenant.
When to allow partial payments
In a situation where a tenant asks to make a partial payment before rent is due and makes the full payment before then, it is okay to allow partial payments. In the case of renting your property to roommates, it is acceptable to accept partial payments from each roommate as long as the total rent amount is collected by the due date plus grace period. If you are using rental property management software, you can allow roommates to make partial payments in order to split the rent amount. You can also decide to not allow partial payments, which means that one tenant has to make a payment for the full amount due.
If you accept a partial rent payment
If you decide to allow your tenant to make a partial rent payment, make sure to acknowledge it in writing. It is important to keep track of the partial amount the tenant has paid and the due date for the remainder of the rent payment. On Schedule My Rent’s landlord dashboard, all of your tenant payments are kept track of and clearly visible on one screen (including any partial payments). If you charge late fees on your lease, specify if you will waive or charge the late fee (and the late fee amount) for the situation.
The disadvantage of accepting partial payments
It is usually not a great idea to routinely accept partial rent payments after the due date plus grace period. If your tenant can’t afford the full rent this month, it is not likely that they will be able to afford the full rent plus the remainder of last month’s rent either. The more you allow that tenant to make late payments, the further behind on rent they will be. As a landlord, you don’t want your tenant to be less concerned about paying their rent or think that not paying the full amount is okay.
Enforcing late fees is a great way to encourage tenants to pay on time. If there is a penalty for paying late, then tenants are less likely to continue to pay late every month. Daily late fees are also a great way to encourage tenants to pay faster. For example, a landlord may charge $50 on the 5th of the month if rent is not fully paid, then charge $10 every day until the rent is paid in full. Schedule My Rent automates late fees and daily late fees so everything is automatically recorded and tenants are sent notices every time a new late fee is added.
Another disadvantage of accepting partial payments is if you allow one renter to make partial payments and not others, you could be accused of discrimination. It is important to keep your rental policies uniform across your properties and units. On the flip side, you don’t want to always allow all your tenants to make partial payments or you might never get rent on time.
In most situations, it is a good habit to not accept partial payments during an eviction. In an eviction process, if a tenant makes partial payments it can extend the eviction process and make it much more difficult to move that tenant out of the property. Schedule My Rent has a feature that allows landlords to stop new payments immediately in an eviction process, helping the landlord move the tenant out quickly. Cash payments at MoneyGram, bank payments, and credit card payments can all be immediately stoped. After the rent due date, it is important to enforce your late fee policies if you don’t receive the full rent amount. Unless you have worked out an alternative solution with your tenant, rent that isn’t paid in full can accumulate late fees.
Use your lease
In your lease you should state when rent is due each month (such as the 1st of every month or the 10th). If your lease has this date, you don’t need to include a clause about partial rent payments. However, if you don’t want to accept partial payments, you should include something in your lease that prohibits renters from making them. The statement should include a consequence for making a late payment such as lease termination, damage to credit, one-time and daily late fees, or eviction.
Run your business
If tenants are having financial troubles, they probably are prioritizing which payments are absolutely necessary that month and which ones have some wiggle room. Between car payments, credit card payments, and rent payments they need to decide which will have the smallest consequence for a late payment. If you allow a tenant to make late payments, or waive their late fees, then you will probably receive late and partial payments from them regularly.
As a landlord, you most likely need rent payments on time each month for your mortgage. Your bank won’t allow partial payments, so a tenant’s partial payment could put you behind as well. But if your tenant makes partial payments throughout the month and pays the full amount by the due date, that is okay because you are getting paid on time. It is important to remember that you are running a business and have to have rules for tenants to abide by. Run your rentals like a business.
Remember the law
In some jurisdictions, if you as a landlord accept partial rent payments, you might not be able to evict that tenant if they don’t ever pay the balance. It is important to know the laws of your jurisdiction and if you are waiving your right to collect a full payment by accepting a partial payment.
The lease should clearly state when late fees and daily late fees are added. Most state laws have limits or restrictions on how late fees can be added, so make sure you follow your local laws.
Encourage on time payments with Schedule My Rent
As a landlord, it is difficult when you receive late or partial rent payments. Schedule My Rent’s property management software has many features to automate rent collect, charge late fees, and remind tenants of when rent is due. And everything is always documented on the landlord dashboard.
Automated rent reminders
Rent reminders for your tenants go out automatically so you don’t have to remind tenants when their rent is due. Reminders increase on-time rent payments by ensuring that your tenant knows when they need to pay their rent.
Late fee setup
As a landlord you can customize:
- Late Fee: how many days after the due date late fees are applied; if late fees are a percentage of the rent or a set amount.
- Daily Late Fee: when the fees start; after how many days late fees stop being applied; a maximum amount of daily late fees that can be collected.
- Stacking: you can stack any combination of late fees and daily late fee in order to match your lease terms.
Documentation and other information
All tenant payments across all your properties are easily documented on the landlord dashboard. For more information, you can watch a property management software video, read the rental property management software guide, or visit www.schedulemyrent.com