Ok to charge interest on back rent?

[mossman]

My tenants owe $430 in back rent and they asked if I could take it out of there $1,000 security deposit. I told them I didn't feel comfortable doing that and am still demanding that they pay the $430. However, they have been having difficulty paying their rent for the past few months so I don't expect to get the $430 anytime soon. My question is, if I decided to deduct the $430 from their security deposit, is it legit to charge them about 2 to 3%interest per year on the $430 until they vacate the home to account for depreciation? They have been renting for 2 1/2 years now and will be in the home until at least July of 2013 and likely after that, so the $430 is going to depreciate significantly by the time they ever get their security deposit back. They're basically borrowing $430 for who knows how many years. Sure it won't amount to much, but that's not the point--they need to realize that there are consequences for this sort of thing.

[Gunguy45]

I think the simple answer is what does the lease say? Late rent usually has a penalty fee...at least they all said that when I rented.

I'd probably tell them they can increase the rent each month by $20 (or whatever) to pay it off, if you feel generous. Not that I'm a landlord.

I think the problem would be that you'd be setting a precedent by letting them take it out of the deposit. What about the next time they can't make it? Now your deposit is pretty much worthless.

[XSleeper]

If it's in the lease contract, yes. If it's not in the contract? no. No late fees in the contract? Maybe you'll think of that next time! You could try charging them interest, but with no legal contract they would not be under any obligation to pay it, since they did not agree to those terms. IMO the only way you would be entitled to interest (or late fees) is if they stiff you, you end up taking them to court, and the judge awards it to you as reimbursement for lost income.

Best bet is an eviction notice "unless paid by..." sent registered mail. One month can turn into two... then three... and by the time they can legally be evicted that can have 4 months free rent (or more!)

[Pilot Dane]

I would not kid myself playing around with a low single digit annual interest rate if it is not specified in the lease. You are not in business (and you are) to teach lessons and certainly not at 2 or 3% a year, 2 or 3% a month maybe but 2% a year is a #$% joke. Take their wear, tear and damages out of their deposit and how much room do you have to absorb their lack of rent payment?

[mitch17]

Our leases not only specify how much we charge when they're late ($25 + $1/day) but the hierarchy of where money paid is applied - the old rent gets paid first which would then make the current due rent delinquent in your scenario.

You may be able to charge interest without stating it in your lease but I would consult an attorney to know the applicable statutes first.

[mossman]

I should have been more clear. They have been paying their rent but often late. They are on a bi-weekly plan because they get paid bi-weekly. They missed their first bi-weekly payment back in October and have yet to pay it back because of financial hardships. I've been pretty lenient with them, but my patience is running thin. Otherwise, they are great tenants and take good care of the property. And yes, I have been charging late fees ($100 per missed payment), which is stated in the lease. Perhaps that is too high? I thought of switching to a daily rate of $5 or so which would give them a bit of a break (if they miss a payment, they typically pay in full on the next bi-weekly date so 15 days x 5 = 75 rather than 100), but on the other hand, I made the late fee steep to discourage late payment.

[hedgeclippers]

Did you consult an attorney before making the lease? I did and whenever a change was made too. Not sure about Viginia law but maybe $100.00 is a bit on the steep side and I think in Maryland where I live the maximum is $50.00. Even though that might have been an error though you can still get back rent and whatever you are entitled to in court. A judge had to decide in our case in Maryland if we should get interest on money due us by poor tenants we had. In our case we were awarded court costs and attorneys fees plus interest. Unfortunately we haven't seen much of that money just a very little bit came to our attorneys office after the judgement. A red flag for us though was the former tenant had already filed for bankruptcy once and admitted that. We should never have rented to them but my mother who is part owner of the house felt sorry for them. If they are truly trying to pay their rent then I say keep them but if they only give $100.00 a month or so and expect you to let them slide by like our previous tenants did then get rid of them.
Our present tenants are behind by a couple of months but the wife is working and the husband is a painter who has had trouble with people paying him what he is owed. Now his last employer apparently went out of business. Still though they are trying and like you Mossman they do pay some rent. We so far have waived the late fee and it has helped us get at least some money. Don't whatever you do though charge interest unless it is court ordered as I doubt your laws in your state are all that different and a judge could rule some in your tenants favor. Instead if you really want interest I would go to small claims court if I was you and request a judgement against your tenants and it will be up to the judge to decide whether you get interest. If they don't pay and you finally have them evicted by court order then you can get another judgement against them to have the judgement marked on their credit report it will then make it very difficult for them to get a decent loan without high interest rates. That will definitely teach them a lesson for at least ten years, it is what we did with our former deadbeat tenants after a judgement to garnish his wages didn't work(he quit his job to spite us and he was offered further education too!). I wish you luck!

[Pilot Dane]

In NC I think $15 is the maximum allowable late fee. You can state that you charge more in your lease but in court they will often only allow the $15. One thing that is perfectly legal is to offer a discount when the rent is paid early, say before the first of the month. Then have a period where the full rent is due like the 1st through the 5th, and then the $15 late fee kicks in for payments on the 6th or later.

You have to look at each case differently but I do not let anyone get a month down on rent. For most renters it's a hole they are incapable of climbing out of. And, the more rent they have not paid really eats into deposit money to cover wear, damages & cleaning when they are out.

[mossman]

Thanks for the advice. I'll see if there are any restrictions in virginia as far as late fees are concerned. If there is a maximum, then it's quite possible that they've already paid $430 worth of late fees which would cover the back rent.

Update: I've been searching around for VA laws regarding landlord-tenant agreements and haven't found anything that specifically states a late fee limit for all of VA. I found something for Stafford and Fredericksburg counties which are close by, but nothing for my county. Judges in these counties have ruled that 5% is the maximum late fee, but not all counties, districts, etc. agree. Does anyone know where I can find the landlord-tenant law handbook for Prince William County Virginia?

[Gunguy45]

AFAIK, the late fees only apply to each late rent payment. I mean...6 months of late rent payments and the associated fees don't negate the non-payment of one months rent.

You really should consider one thing IMO...if they are good tenants...what are the next ones (if you can find one) going to be like?

I worked with a few guys who were landlords...and they prayed for someone who took care of the property and they were willing to let some things slide as long as the place was still intact at the end of the lease. I don't mean giving up an owed payment completely...but just giving more latitude.


I rented my house in VA (but used a management company) when I got transferred for 2 yrs to the West Coast...when I came back, I couldn't believe that a senior AF officer wouldn't even pay to water the lawn. It was dead as a doornail and was never the same even after a rehab when I moved back. The interior was just fine....but boohoo my lawn!

[mitch17]

$100 per missed payment is steep, you could look bad in court (if this goes there) if you try to tack on interest as well. I think I'd stick with what you have.

[hedgeclippers]

Mossman it has been a while since I last visited the lease and updated it so I wasn't thinking about legal books. Go to your public library and ask the librarian where they keep the law books. Look for books made by the Mitchie company and look particularly for a book about real estate then look in the index for leases and rental property. Hopefully it will be specific to your area but might be more generalized. This same company provides a free look up if you are in Maryland and a few select states but not for Virginia online. To really be sure go to a lawyer if you are in college or have a child in college you can go to a lawyer on campus and get advice for a lower price. A college professor who is a lawyer might not mind looking something up for you too but if you have more complex problems you need to look elsewhere. An off campus lawyer will probably charge anywhere from $50.00 to $150.00 to look over your lease and make comments but I think money well spent for good advice.

[mossman]

I dropped the late fee from $100 to $75 per missed payment, which is typical in my area (Northern Va). They've had six late payment to date so I told them I would deduct $25 from each past late payment and deduct this amount ($150) from that amount they owe me. Hopefully this will allow them to pay their balance in full come the next due date.