Frequently Asked Questions - Late Fees
By statute, a late fee is a “reasonable fee or charge that is assessed by [a storage] operator for the failure of the occupant to pay rent when due.” [A.R.S. §33-1701(A)(5)]
Not collecting rents costs you money. As well, efforts to collect unpaid amounts cost you money, for example, managers’ time making calls and pursuing collection efforts, postage, paper, envelopes, telephone bills, etc. Importantly not included in that list are lock cutting fees and other auction-related costs. Those are part of a different process: foreclosure.
Imagine standing in front of a judge and explaining why you charge the late fee that you do. If you can defend the amount by showing its relationship to the costs you incur by virtue of not being paid, then by definition, the amount is reasonable.
That’s not always easy to do, however. How do you demonstrate an apportionment of a manager’s time dedicated to collection efforts? How do you isolate your computer and paper consumables costs for collection efforts? Fortunately, the law gives us a “SAFE HARBOR,” i.e., an amount of late fee that is, as a matter of law, automatically considered to be reasonable. That amount is:
The greater of $10 or 20% of the monthly rent [A.R.S. §33-1703(D)]
It’s not mandatory that you calculate your late fees according to this formula, but it insulates you from the threat of lawsuit, and saves you the accounting nightmares needed to justify other amounts.
Imagine standing in front of a judge and explaining why you charge the late fee that you do. If you can defend the amount by showing its relationship to the costs you incur by virtue of not being paid, then by definition, the amount is reasonable.
That’s not always easy to do, however. How do you demonstrate an apportionment of a manager’s time dedicated to collection efforts? How do you isolate your computer and paper consumables costs for collection efforts? Fortunately, the law gives us a “SAFE HARBOR,” i.e., an amount of late fee that is, as a matter of law, automatically considered to be reasonable. That amount is:
The greater of $10 or 20% of the monthly rent [A.R.S. §33-1703(D)]
It’s not mandatory that you calculate your late fees according to this formula, but it insulates you from the threat of lawsuit, and saves you the accounting nightmares needed to justify other amounts.
Whether a late fee is reasonable or not depends upon the total of late fees charged against the tenant within the month, regardless of the number of installments.
Depending upon your company policy, you could charge only a single late fee per month, or you could break it up, for example, charging one amount on the 6th, another on the 10th and a 3rd amount on the 16th. If the total of the three falls within the “safe harbor rule” then the late fee is automatically considered to be reasonable.
Depending upon your company policy, you could charge only a single late fee per month, or you could break it up, for example, charging one amount on the 6th, another on the 10th and a 3rd amount on the 16th. If the total of the three falls within the “safe harbor rule” then the late fee is automatically considered to be reasonable.
No. The law requires only that the lease “state the date on which rent is due and the date on which the late fee accrues.” [A.R.S. §33-1703(B)(4)]
In other words, you only have to warn the tenant when the risk of incurring a late fee will arise, but not how much it will be.
In other words, you only have to warn the tenant when the risk of incurring a late fee will arise, but not how much it will be.
No. Suppose that under your old policy you charged only a single late fee on the 10th of any month in which the rent is unpaid, and that your leases for many tenants disclose your 10th-of-the-month policy. Now you want to change to a split late fee, charging a small late fee on the 5th of the month and another fee on the 10th of the month.
The statute provides a simple solution: send a letter by verified mail to the tenant under the old leases stating the new policy. That’s it. [A.R.S. §33-1703(E)]
Of course, new leases written after introduction of the new policy should of course show the new dates upon which late fees will be charged.
The statute provides a simple solution: send a letter by verified mail to the tenant under the old leases stating the new policy. That’s it. [A.R.S. §33-1703(E)]
Of course, new leases written after introduction of the new policy should of course show the new dates upon which late fees will be charged.