A late fee is an additional charge that landlords place for rental payments that are not paid on the assigned due date. It is a powerful tool that can encourage tenants to pay rent on time. However, there are specific regulations that oversee and guide how late fee policies in rental income properties are enforced. Continue reading to learn more about late fees in Texas and how they work.
Key Takeaways
- Following Texas regulations, a late fee is a penalty landlords charge to tenants with unpaid rent two full days past the due date.
- Late fees in Texas must be reasonable and not punitive; thus, they must align with the given guidelines and with market norms.
- Late fee clauses must clearly state the rent due date, when late fees begin, and how fees are calculated to avoid disputes and unenforceable terms.
Are Grace Periods Required Under Texas Law?
As Austin property managers, we understand that landlords can be very particular about rent payments. However, being considerate of your tenant’s situation can also bode well, especially when it comes to late rent payments. That is why a lot of landlords include grace periods in their landlord-tenant lease agreements. But are grace periods required under Texas law?
The answer is no. The Texas Property Code does not specifically mandate landlords to include grace periods in their leases. However, Texas regulations also state that landlords may not collect late fees from a tenant until two full days have passed after the rent’s due date.
When Can Texas Landlords Charge Late Fees?
The Texas Property Code establishes the rules and regulations that landlords need to follow regarding a tenant’s late payment of rent and the applicable fees. This begs the question: When can landlords charge late fees in Texas?
According to section 92.019 of the Texas Property Code, you can only charge a late fee on a rent payment if, first and foremost, this is indicated explicitly on your lease agreement. Aside from this, rent must be fully unpaid. This means that you can’t accept partial rent payments and charge late fees as well. Then, there’s the 2-day period after the rent due date that you have to wait before you can start charging late fees. Lastly, the state requires that the late fee – whether initial or daily – cannot be excessive and must be reasonable.
What Counts as a “Reasonable” Late Fee in Texas?
Now, what does Texas law say about “reasonable” late fees? While there is no strict cap on how much a landlord can charge, Texas regulations maintain that late fees must be justified. To do this, state laws have established a percentage range of the rent amount that landlords can collect as a consequence of a tenant’s late payment of rent.
For landlords with a rental property with four or fewer units, you can only charge a late fee of no more than 12% of the rent price. And for properties with five or more units, the percentage rate falls to 10%. However, you can collect an initial fee on top of a daily late fee, but these combined must not exceed the aforementioned percent of the rent. Because of this, reasonable late fees typically fall between $25 to $100, considering that the average rent in Texas is $1,850.
It is also important to keep in mind that the law strictly prohibits excessive and punitive collection of late rent fees. If disputes arise and the court finds you in violation, you are putting yourself at more risk. First, the late fee charge will be considered unenforceable. So, you can’t collect anything from your tenant anymore. On top of that, you are liable to your tenant for damages and will be required to pay back three times the late fee that you have collected, an additional $100, as well as your tenant’s attorney’s fees.
How to Structure Late Fee Clauses to Stay Compliant
Taking all of these into consideration, it’s important that you pay close attention to how you execute late rent fees in your rental income property. In this case, your lease contract can be your biggest form of defense against potential disputes. So, how should you structure your late fee clause to maintain compliance with state regulations? Here are some tips:
- Make sure that the rent due date is clearly stated on the lease, clarifying the exact date and when it is considered late if not received by a certain time of the day. For example, rent is due on the 1st of the month and is late if not received before 6 PM.
- Have your lease agreement specify when late fees start to apply. Keep in mind that Texas regulations state that such fees can only be applied after two full days of the agreed-upon due date. This is to avoid ambiguity and to ensure that the tenant is informed of possible repercussions.
- Include a detailed outline of how exactly the late fee amount is calculated. Here, you can establish a flat dollar amount, a percentage of the monthly rate, or a combination of an initial and daily late fee.
- Following Fair Housing laws, always apply your late fee policies consistently across all of your tenants. If you want to waive late fees, document the decision diligently to ensure it was made under defined circumstances and not arbitrarily.
Partner with BMG For your Property Management Needs
Late fee policies are what landlords typically use to maintain consistent on-time payments from their tenants. However, the Texas Property Code has established rules and guidelines to prevent excessive use of this policy. Now, as a landlord, it’s important that you understand deeply how late fees in Texas work – from knowing how these apply to how much exactly you can charge. Otherwise, you’re putting yourself at risk of disputes and legal liability.
Want to ensure rent is paid on time? Partnering with a professional property management company, like us at BMG, can make your life so much easier. Our property managers can handle rent collection, and in case of late payments, we’re equipped to enforce your policy equally, consistently, and fairly for all your tenants. On top of that, drawing from our experience, we can help ensure that you remain compliant throughout the process. Interested? Don’t wait any longer and contact us today to get started!
