(This post is part of our “Landlord Basics” series, which seeks to help the new landlord / investor understand some of the basics of tenant relations and property management. Click here to view the entire Landlord Basics archive.)
In a perfect world, every tenant would pay all their rent on time every month. Unfortunately for the real estate investor, we don’t live in a perfect world. A tenant’s failure to pay rent on time is a violation of the lease, but do you always want to move for eviction? The tenant payment agreement can help you stay on top of your tenants, while at the same time giving them the opportunity to catch up.
Case 1: Betty White, a 68 year old long term (7 year) resident of one of your duplexes, had a larger than average heat bill for the month of December and calls you a week before rent is due in January asking if she can pay on the 10th of the month. Her payment history is solid, having been late only one other time during her tenancy. This is a prime situation for a tenant payment agreement, because Betty is a solid, long term tenant who is just trying to catch herself back up. In addition, she called early because she anticipated a problem, giving you a heads up on the situation.
Case 2: John Stone and Adam Dopermeiser, 22 year old residents of one of your complexes, call you on the third of the month and ask for an extension for their already late rent. Since the tenants moved in 6 months ago, you have received 2 noise complaints, and the rent has been late once. In addition, there is a lot of late night foot traffic in and out of their apartment. In this instance, you may want to look at processing and serving a 3 day or 30 day notice. There are multiple lease violations with this set of relatively new tenants, and the increased foot traffic may be indicitive of other activities taking place on the property.
The Tenant Payment Agreement can help you save a good tenant who pays on time from facing a eviction. These notices should be filled out with the tenant, and the tenant as well as owner / landlord / manager should sign and keep copies of the agreement for their records. Be judicious in choosing what tenants receive tenant payment agreements, and you can save yourself a lot of headaches.
Consider a tenant payment agreement for tenants who:
- Call before the rent is due, because they have anticipated a problem.
- Have a strong payment history (usually at least 6 months with no late payments).
- Have not violated other sections of their lease.
Some landlords will disagree with this article, saying that “the rent needs to be paid like any other bill” which is true. However, the cost of evicting a tenant, preparing a unit for rental, marketing, screening, and placing a tenant are generally much steeper than the inconvenience of waiting a few extra days for a good tenant to pay their rent.
In deciding how long to give a tenant to pay, a good rule of thumb (at least in the Buffalo area) is the 15th of the month. This gives you time to process a 3 day notice and get into court before the end of the month. You also have the option of preparing a 30 day notice and serving it prior to the first of the following month, terminating the tenancy and asking the tenant to leave.
Later this week, I’ll be posting a sample Tenant Payment Agreement, so be sure to check back!
Andrew Schultz is a real estate agent and property manager located in the Western New York area. His articles on real estate investing and property management can be found at www.andrew-schultz.com.
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