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When is an Austin Rent Payment Considered “On Time”

One of the most misunderstood agreements that tenants have with Austin Property Managers and Landlords is when rent is actually due. It’s clearly spelled out in the written lease agreement, but confusion exists nonetheless. Most lease agreements require rent to be paid on or before the first of each month. All Crossland Property Management leases have a due date of the 1st, no exceptions. Many of my tenants, however, consider the “due date” to be the last day of the grace period, which is the 3rd for us. This is not correct and can lead to undesirable outcomes for tenants.

Most Texas leases include a provision that states the day upon which late fees begin to accrue for unpaid rent. The period of days after the 1st, but before the “late fee date”, is called the “grace period”. In fact, a 1-day grace period is mandated by Texas law, meaning the first day that a Texas landlord can lawfully charge a late fee is the 3rd of the month (assuming the lease states a due date of the 1st, with the 2nd being the 1-day grace period).

At Crossland Property Management, we have a 2-day grace period (giving an extra grace period day), meaning rent can be paid late on the 2nd or 3rd without a late fee, and the late fee starts on the 4th. But this does not make the 3rd the “due date” for rent, as so many tenants seem to assume. It works like this:

Rent Paid on or before the 1st – This is an “on time” rent payment. You are performing as agreed in the lease. You are an A+ rent payer.

Rent Paid on the 2nd or 3rd –  This is a “late payment” for which no late fee is charged, because of the 2-day grace period. You are a B- rent payer.

Rent paid on or after the 4th –  This is a late payment for which a late fee is incurred. You are a D rent payer. If I have to send an eviction notice before you pay, you earned an F. This will cost you not only in late fees, but in other ways explained below.

Tenants often mentally convert the due date to the 3rd instead of the 1st. In fact, in any given month, about one third of our rent payments are received late ON the 3rd. It’s human nature. We think in terms of consequences. A late payment each month on the 3rd seems to have have no consequences to most tenants, and many in fact consider it to be “on time”. But in fact is not correct.

You may think, “ok, I understand what you’re saying Steve, but there’s still no downside to paying on the 3rd, so I’ll just keep doing that”. This is where most tenants don’t know what you don’t know. There are in fact financial consequences to paying late each month, even within the grace period. Mainly, I don’t offer the same renewal rates to tenants who consistently pay late as I do to tenants who consistently pay on time. I also don’t provide as good a rental refernce for late payors as I do for those who pay on time.

Here’s how it works for lease renewals.

Each month I review the list of lease renewals for properties we manage. I look at the current rental rate and compare it to the current market rent rate. I also look at tenant payment history and the communication/repair history of each tenant. This might include violation letters from the HOA, complaints from neighbors and repair requests.

At present, rents are rising in Austin so virtually every renewal letter will have at least a small rent increase. Here is where tenant performance becomes very important.

I offer the most generous renewal rates to my best tenants.
If you consistently pay on time (the 1st) or early, you communicate repair requests in writing as required by the lease agreement (preferably through our online repair request form), you take proper care of your yard and the property, and you don’t cause HOA or neighbor complaints to be issued, you are one of our “best” tenants. You are an A+ tenant, and your renewal rate will reflect that. Many of my A+ tenants in fact remain at “below market” rental rates because we value the stability and good relations that A+ tenants provide. You represent an asset to our owners and you are justly rewarded by receiving the most favorable consideration possible at renewal time.

I offer the least generous renewal rates to my riskiest tenants
What is a high risk tenant?  You are a high risk tenant if you pay late every month, including consistently paying on the 3rd. You are a high risk tenant if you, for what ever reason, have to be reminded of the agreements you made when you signed your lease and you demonstrate a reluctance or inability to abide by the terms and conditions of the lease agreement. If you call on the phone and argue about having to submit repairs in writing. If you slip up and pay late on the 4th, but then argue about the late fee and act like a petulant child. If I receive HOA complaint letters because you can’t follow neighborhood rules. If, on a drive-by, I see that you provide minimal care to your yard.

If any of these things describe you as a tenant, then you represent a “higher risk” to the landlord, and you create greater effort for the property manager. Your renewal rate will rightfully reflect this.

I typically don’t “non-renew” tenants, unless we have chronic problems and ongoing unresolved issues that are serious. We’d rather avoid turnover, when possible, for our owners. But what I will do is raise the rent so high that you might decide to leave on your own. If you don’t, that’s ok, you’re paying a premium rent rate which properly compensates my owner for the higher risk you represent. This is why I have some tenants paying much higher rent than others for the same floorplan in the same neighborhood.

Finally, when a tenant does move and the prospect landlord calls to ask for a tenant reference, I either report “they always paid on time, took good care of the property and caused no problems”, which is what you want me to say. You don’t want me to say “they consistently paid late and had some trouble abiding by the lease terms”.

The landlord/tenant relationship is a two way street. It’s an extremely tough profession for property managers. Because of that, as a property manager, I very much appreciate good A+ tenants who make my job easier by paying on time and communicating well, and I don’t appreciate tenants who make my property management job harder by paying late and arguing about stuff. Most importantly, our A+ tenants are often paying $600 to $1800 per year less in rent than our C- tenants because we place that high a value on the risk that C- tenants represent. Within which category would you rather reside? It’s as simple as paying on or before the 1st and abiding by your lease terms to be in the A+ category.

Posted by Steve
6 years ago
Steve

Steve is a Real Estate Blogger, UT Austin Grad, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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Brent Bockholt - 6 years ago

Steve, I completely agree with you on all points and practice similar assessment techniques when doing lease renewals. Unfortunately, as you indicated if there is no immediate “penalty” for paying by the 3rd then those B- tenants don’t feel the consequences. Perhaps Austin property managers should implement a sticker system whereby each time a tenant pays by the 1st they will receive a gold star. At the end of their lease term, if they have received 8 or more stars they can pick from a treasure chest of goodies for their effort. 😉 Honestly, the longer I’m in this industry the more I feel I’m dealing with children on a day to day basis. Thanks for your input it is always appreciated.

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Greg - 6 years ago

Do you communicate any of this to the tenants? Maybe the B- tenants could be convinced to become A tenants if they knew what was at stake. The Ds and Fs are probably a lost cause.

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Scott - 6 years ago

Hey Steve,

Had a quick question about the Texas mandated 1-day grace period. My lease states that there is no grace period for late rent. Are they allowed to enforce that or does the state law still overrule it?

Thanks!

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Steve Crossland - 6 years ago

Scott,
State law must be followed. That said, why not just pay on time and let it be a moot point?
Steve

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Scott - 6 years ago

I placed the check in the mail on the last day of the month, as it needs to be postmarked by the 1st of the month. 1st of May fell on a Sunday, so it didn’t get postmarked until the 2nd.

I emailed him explaining everything and asking if he could make an exception considering the circumstance. I’ve never been late on any payments before. He isn’t willing to budge. Now I’ve also learned that there is a late fee on the late fee as well, which has added up to just of 25% of my actual rent.

Thanks for your reply though! I’m trying to handle this professionally, and it only frustrating me.

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Steve Crossland - 6 years ago

Is it s private landlord or a Property Manager?

Yes, postmarks are not recognized. I personally will respect a postmark on the 1st, but most leases expressly state that the postmark does not matter, period. The rent has to actually be received on time.

You might try calling Austin Tenant’s Council for some free advice. They can let you know if your landlord is operating outside the boundaries of acceptable practice, per property code and late dates.

Steve

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Scott - 6 years ago

It is a property manager. The lease states that it is the postmark that is required on the 1st.

I’ll give the council a call and see what their thoughts are.

Thanks again for the advice, really appreciate it!

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Scott - 6 years ago

I talked to the tenant council today. The woman I spoke with said she had never heard of the 1 day grace period law, and that if it says no grace period in the lease, then that’s what it is.

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Steve Crossland - 6 years ago

Hi Scott,

Well, you were misinformed. See number 3 below.

Sec. 92.019. LATE PAYMENT OF RENT; FEES. (a) A landlord may not charge a tenant a late fee for failing to pay rent unless:
(1) notice of the fee is included in a written lease;
(2) the fee is a reasonable estimate of uncertain damages to the landlord that are incapable of precise calculation and result from late payment of rent; and
(3) the rent has remained unpaid one full day after the date the rent was originally due.
(b) A late fee under this section may include an initial fee and a daily fee for each day the rent continues to remain unpaid.
(c) A landlord who violates this section is liable to the tenant for an amount equal to the sum of $100, three times the amount of the late fee charged in violation of this section, and the tenant’s reasonable attorney’s fees.
(d) A provision of a lease that purports to waive a right or exempt a party from a liability or duty under this section is void.
(e) This section relates only to a fee, charge, or other sum of money required to be paid under the lease if rent is not paid as provided by Subsection (a)(3), and does not affect the landlord’s right to terminate the lease or take other action permitted by the lease or other law. Payment of the fee, charge, or other sum of money by a tenant does not waive the right or remedies provided by this section.

Check online at:
http://www.statutes.legis.state.tx.us/Docs/PR/htm/PR.92.htm

Steve

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Scott - 6 years ago

Steve, you are my hero!

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Yvonne - 6 years ago

Well I am better than an A+ renter. I pay rent months in advance; however, I am never rewarded. In fact, I feel I am taken advantage of because I have a felony conviction. I once signed a 9mo lease simply because of the time of year I signed the lease. I paid a double deposit, gave 1st and 2nd months rent and paid the lease off in 4 months. I simply sacrifice each mont to not have to worry with rent. I am a social worker and am underpaid.

Anywho, I chose not to renew because i relocated to another city for a job opportunity. Property manager took 2 months to return my deposit after catching an attitude with me on the 29th day, after I moved out, of my call to inquire about my deposit status. On the 30th day she stated she placed my deposit in the mail. Oh wait, I received permission to have an animal in the home. However, I was told the owners didnt want an animal in the home. I paid a 300 dollar deposit. out of $1950 in deposits I received $461 back on my deposit and the company returned the deposit to me 2 months late.

I was charged the full $300 for animal damages. I had a beagle. They said he dug a whole in the back yard when I emailed photos of the back yard upon move in, I received no reply. I was charged a full replacement of carpet. Mind you a huge animal was in the house before I moved in the. The owners children lived in the home with a rot weiler, I believe. My animal was blamed for ruining the carpet. The carpet had to be pulled before I moved in to make it look nice. The house smelled of stinky dog when I viewed it. The tried to charge me for blind replacements, but I had a previouse email from the lady stating they would have the blinds repaired. I was charged for storage of a barbeque pit which did not belong to me and I argued this. This pit was at the house when I moved in. I was not aware I needed to put it on my inventory sheet since it did not belong to me. I never used this pit. Additionally, I was charged for some bogus plumbing repair charges. When I asked for a receipt I was provided with reciept made on company letter head.

I left the home in very good condition. I repainted walls, my animal chewed a wall edge I replaced this. I dusted and replaced all lights. I even had the carpet shampooed. I am still angry about this because I never gave them any problem. I gave them ample time to return my deposit. Mostly because of my lack of renting knowledge. Prior to renting on my own I resided in public housing. Prior to this I resided in a homeless woman program. I had no real prior knowledge of renting.

I go above and beyond to get an A+ report because I have a felony. I cannot give anyone another reason for anyone to tell my daughter and I no for housing, but I get screwed each time.

In my last renting experience I paid the lease completely out because it was only a 6mo lease. I paid a double deposit, again. I was charged for not cleaning the oven. I didnt take pictures this time and had no proof of the oven being burned on the inside when I moved in. This was normal oven wear. Again, I steamed the carpet, no animal! Of $800 I received $500 back in my deposit.

I am starting to think there is no such thing as A+ treatment. I dont rent in slum areas either. I rent in very nice areas of town because I am able to make the case for being a great tenant. Masters degree, job history, responsible mother, and I am licensed professional.

So what do you suggest?

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dale - 6 years ago

you only talk about your 1-2-3 renters paying on time ….seems to me anyone that consistently pays you your rent on or before the 3rd day year after year./..should get consideration on renewing the lease….so if I was one of those renters I would tell you see-ya.and you sound like the greedy person you are plenty of places to rent…JAck

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Ed - 6 years ago

Steve, Great points all around. I like the system. So easy to follow.

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Lara Blackburn - 6 years ago

This is a really interesting article on the consequences of paying rent on time on the first versus late payment and to be honest I’ve never thought about it like this. I’m wondering if online payment software like Buildium or RealPage’s property management software has helped improve the rate of on-time rent payment? It would be great to hear any feedback.

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Steve Crossland - 6 years ago

Hi Lara,

We use PayLease.com to allow tenants to pay online. I do get very few late payments and most tenants do use the online service now. I’m not a fan of all-in-one payment solutions integrated with the software. I prefer to have more control and flexibility by keeping the payment processing company separate from the software vendor.

Steve

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Maria Cruz - 5 years ago

My tenant sign Lease Feb 26th, and move in the following day, I collect first month rent and one month security deposit.
Am I suppose to collect the next rent on March 26th.. I’m confused

Thanks for your reply.

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Steve Crossland - 5 years ago

Hi Maria,

Payment due date would be stipulated in your lease agreement. If not, then you’re not using a proper lease agreement. You may want to have it reviewed by an attorney if it’s not clear about such things.

Good luck,

Steve

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