Question: I own a 20-unit rental property and have a property management company. One of my renters is having difficulty paying rent on time and I have just noticed that the property manager is keeping the late fees as opposed to passing the fees on to me. Her response is that this is standard practice, but I am sure that my previous manager forwarded the fees to me. What is the proper procedure in these cases?

Property manager Griswold replies:

The retention of late fees by the property management company is a negotiable item, and there is no industry standard or common practice that I am aware of that I can cite for you. I can tell you that I know there are some companies that have a similar policy of taking the entire late charge as additional income in their pocket, but personally I can tell you that my property management company does not have such a policy. Any late charges or returned-check fees or other similar amounts are collected as additional gross income for our property-owner clients.

Of course, we do collect our percentage management fee on the late charge that we collect, as it is part of the gross collected income for the landlord, but this is a nominal amount. I do feel that a late payment creates a burden on the landlord, as those are funds that the landlord doesn’t have to make his or her loan payments or pay expenses.

The other side of the argument is that the property manager has to incur additional costs and labor in contacting the tenant and/or sending legal notices to nonpayers. I would agree that collecting late or delinquent rent is an extra cost to the property manager. But should the property manager be rewarded for accepting or retaining tenants that pay late? With the property manager not receiving the entire late fee he or she has an incentive to carefully screen incoming tenants to avoid late-paying ones. As a landlord, you shouldn’t be interested in maximizing your late-fee income, as the name of the game to be a successful rental property owner is to have tenants pay on time and treat the property and their neighbors with respect.

I would review your contract and verify that the late charges do accrue to the property manager and then contact the company to see whether it will drop those additional charges or renegotiate the contract to exclude them when the contract expires. If it will not cooperate, then you may want to look for another management firm rather than renew the management contract.


***


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