Property Management Basics: Late Fee, Part 1 - Can I evict during the grace period?

This is a foreword legal disclaimer: We are not attorneys and do not intend to practice law, all sources are cited.  We are starting a new multi-week segment focused on that topic we all hold so dear, late fees.

Excerpt:

Consider a landlord and tenant who enter into a rental agreement which sets the due date for rent on the first day of each month. The rental agreement also contains a late charge provision imposing an additional charge if rent payments are not received on or before the 10th of the month. A grace period is not mentioned in the rental agreement.

Each month, the tenant pays rent after [the 11th]. The landlord accepts the tenant’s late rental payments every month, but makes no demand for payment of the late charges.

Finally, on receipt of yet another late payment, the landlord informs the tenant all future rent payments must be received by the landlord prior to the date for incurring a late charge.

The next month, [rent is received after the 11th]. [T]he landlord serves the tenant with a three-day notice to pay rent or quit that includes a declaration of forfeiture provision. The tenant does not pay rent before the three-day notice expires. The landlord files a[n eviction]. As in the prior months, the tenant tenders the rent payment to the landlord after the late charge period has expired. However, unlike in prior months, the landlord refuses to accept the payment, claiming the tenant is now unlawfully occupying the premises.

Has the landlord established an unlawful detainer on expiration of the [3-day] notice?

Before we answer this question, this may hit hard for some landlords out there, as this can be a technical and detailed untangling.

No! The three-day notice is premature and useless. The tenant’s rent had not yet become delinquent. Rent is not delinquent until the grace period — including extensions authorized by the landlord’s conduct in accepting late payments — has run without receipt of rent.

When the rental agreement called for a late charge after a day other than the due date, a grace period was established, even though it was not explicitly identified as a “grace period.” Further, the landlord extended the grace period by consistently accepting rent payments after the grace period without demanding the late charge, an activity required to enforce the late payment provision.

(page 234 of Real Estate Property Management, Fifth Edition, published by First Tuesday)

The purpose of this segment is simply to state the nature of lease contracts CAN be changed by action (not only by signature), even if it is a fixed-term lease. If the landlord DOES NOT enforce a provision of their lease, they have implicitly given their approval to change it. To be specific, if a tenant intends to pay late, and the owner does not access a late fee, it changes the lease, as the date they paid is the new due date. In this case, a late written late fee (such as what we do with our billing statements) is a implicit objection to their changing of the lease.

Thanks and stay tuned for part 2 of this series.

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