We bought a park in Minnesota a little more than a month ago, and we are really struggling to get the tenants to pay on time. In Minnesota, the max late fee you can charge is 8% of rent.
So, the max late fee we can charge on our $295 lot rent, is a measly $23.60.
We came up with an idea… we want to increase our lot rent by $100 to $395. But if the tenants pays on time, then they get $100 discount. So the lot rent will remain $295 for those who pay on time.
We ran this by our lawyer, and he says “To my knowledge this legal question hasn’t been tested by the courts, but it might be worth a try. The argument against it would be that it’s just a disguised late fee, and since it exceeds 8%, it wouldn’t be allowed. Your argument is that it’s merely a rent discount if they pay on time. I would try it for maybe 6 months to see if it works. The only danger is that Legal Aid could test this and if a court were to agree with them, you might have to repay some of these monies. If you want to give it a try, please send me the wording you would use in your lease so I can review.”
Could the members of the forum please give us some advice/thoughts?
People who don’t have it together enough to pay their bills on time will not be transformed by the offer of discounts. You will just end up loosing income to those who don’t need the discount anyway.
What the discount communicates is weakness – “Oh please, please, give me my money.” You need to think of yourself as a land_lord._
The big stick you need to employ is the 3 day notice. You may loose a tenant or two; that is part of the cost of doing a turnaround. You need to set a schedual for what day of the month rents are due, what day of the month the 3 day notices are served and what day of the month the unlawful detainer lawsuits are filed. After that, you are done with the decision process; the calendar runs the rent collection process thereout.
One of the hard and expensive lessons landlords learn early in their careers is you do nobody a favor by allowing slack into you collection system. All slack does is allow them to get so deep behind that they will never be able to climb out and you (at great expense) will end up making them homeless. If they understand you are a hard ass when it come to collecting your money, very few will fail.
One final point:
Make sure everyone understands your calendar is in charge of the collection system and all your rent collection communications look as professional and no nonsense as something from the bank.
My preferred process is to give notice and if the tenant does not learn the only option is to evict. Landlords are usually the root cause of late paying tenants. The tenants have been trained by their landlord that there are no consequences to paying late, except a financial penalty, and therefore will not respect payment on time.
It is not difficult to train tenants to pay on time but it requires a professional approach to business…Pay on time or leave.
I agree with Randy here, I am a regional manager for a company that owns 30 plus parks and the 3 day notice is key. I would not do a discount for one time residents. I would strictly enforce the 3 day notice, give your tenants a grace period to pay and after that grace period start your notices.
I would also send out reminder notes during the last week of the month to remind them that they rent is due. This takes a lot of leg work but I can assure your delinquency percentage will decrease. Show you are serious, if after the 3 days they don’t pay you can terminate tenancy. When people see the words, “Terminate Tenancy” it sparks a fire under them to want to lost their homes.
I own a few parks in MN. Actually the law is a bit ambiguous. There are areas in the law that says late fees must be reasonable and then there is another section that says no more than 8%. Where is your park in MN?
We filed eviction orders on 4 tenants… two paid immediately, and two ended up in court, and the ruling was in our favor without any problems. The ones who went to court were ordered to pay our legal fees.
We think that the news is spreading that we are serious, no pay, no stay. Rent collections are getting better.
We did not implement a discount for paying lot rent on time.
In my park people can earn a $25.00 discount if they pay on or before the 1st. The state only allows a 5% late charge after the 15th which is no motivation. The operative word is ‘earn’ and it is for paying in advance. It goes over well and not likely to be challenged. The majority of tenants take advantage of the discount. I think you are likely to be challenged for a $100 “discount” on $400 rent for paying on time. It is obviously a late charge trying to circumvent the 8% max in your state put in place because parks were putting in huge late charges. I doubt you will be the first to have tried it. Many of us have considered it.
3 day notice: Check your states laws. In my state, they get a 30 day notice if they own the trailer, 7 day if they rent. State law is due on 1st and deemed late on the 5th.