Online Rent Payments
Collecting rent can be a challenge for some landlords despite strong lease agreements and thorough tenant screenings for applicant/tenant demonstrated willingness and ability to pay as agreed. Full and timely rent payment by the tenant may be a matter of how easy it is to pay rent.
If the rent payment procedures are easily understandable to tenants and relatively simple in manner of operation, there is greater likelihood that tenants will pay as agreed.
In developing rental policies a landlord takes into consideration his business needs, legal obligations, and factors such as his properties’ locations, type, market conditions of supply and demand, demographics, market share, and competitive ranking. The right rental policy governing any number of property management issues is the one that is legally compliant and helps protect business interests by establishing best practices that are non-discriminatory in nature and application.
Online rent payments may offer a best practice solution to timely rent payment that benefit both landlord and tenant by a more efficient processing of rent payments.
An online rent payment processing system can benefit landlords by:
- Providing for business needs of property operations
- Reducing administrative time associated with processing in-house payments (paper checks or equivalents), and collection duties for late, missed, or partial payments
- Allowing a more efficient rent collection process
- Improving property cash flow by moving money more quickly into the landlord’s account
- Increasing likelihood of full and timely rent payments
- Reducing risk of fraud and theft including identity theft
- Providing tenants with options for electronic rent payments that are acceptable to the landlord
- Reducing time and effort for both landlord and tenant in the rent payment process and therefore helping reduce stress
Implementing an online rent payment system is not without landlord due diligence and some amount of time and effort. While many large multi-family complexes offer online rent payment portals, some independent landlords have been hesitant to explore online payment services due to resource concerns such as cost, implementation time, training, and potential integration into existing property management operations. Current technologies now enable a landlord to fully implement online rent payments including other property management functions at low cost.
Types of Electronic Rent Collection Tools
Electronic rent collection can be accomplished through an integrated property management online portal or by a separate stand-alone processing model. Any type of collection tool should be a secure offering with bank level security features including user identity verification. Convenience and ease of use are important features to tenants while both landlord and tenants want tracking and report capabilities.
An important decision for landlords is whether to use an integrated portal (all-in-one) or a separate processing module. An all-in-one system can integrate core property management functions such as applicant processing, tenant screenings, deposits and fees, rent collection, payments history, maintenance requests, and landlord-tenant communications into a full service package that benefits landlords and tenants. Generally a stand-alone payment processing module is a more basic accounting/reporting system that may or may not provide a landlord with the level of full detail required for adequate property management.
It will be part of the landlord’s due diligence to determine the applicability and functionality of systems that support his particular type of properties and his business needs. From a potential applicant’s or the new tenant’s perspective, a system/module that offers multiple payment channels such as online, mobile app, or smartphone and multiple payment options such as credit card, debit card, or recurring automatic payments provide the greatest benefits and potential incentives for full and timely rent payments.
Fees
Cost effectiveness is always a consideration in property management operations. Transaction fees and/or processing charges can increase the landlord’s costs of doing business. It is a due diligence task for a landlord to adequately research and evaluate potential online payment processing services and offerings to determine their fee structure and payment requirements. A fee based upon a percentage of the transaction (e.g., rent amount) will generally be more expensive than a fixed monthly fee.
There are several major online companies that offer online rent payment processing at low-cost or potentially no cost to the landlord depending upon the types of services requested, the volume of transactions, and systems integration.
When transaction and/or processing fees are incurred, it will be the landlord’s business decision regarding who pays (landlord or tenant).
Some landlords will require the tenant to be responsible for rent processing fees. Fees can be included in the total rent amount due or shown as a separate fee from the rent amount. The lease agreement should clearly detail rent payment procedures and tenant responsibilities for rent and processing fees.
However since payment of extra fees could cause problems with the tenant’s ability to pay timely rents, some landlords choose to pay processing fees themselves as a cost of doing business. The cost of processing fees may be worth it to the landlord for the convenience of electronic processing of payments and the benefits of a timelier, secure receipt of rents.
A few landlords may attempt to force tenants to use online rent payment by assessing a penalty fee if the tenants continue to pay rent with a check or money order. In some states by forcing a tenant to use a single option for rent payment, a landlord can be in violation of state landlord-tenant statutes. Many states have enacted laws that require landlords to provide another non-electronic payment alternative to online payments. A landlord should consult with his legal professional regarding statutes governing rent payment options.
Fees and Material Change to Lease
A landlord cannot change terms and conditions of the lease agreement during tenancy. If during the tenant’s occupancy of the rental premises, a landlord implements online rent payment processing and assigns the responsibility of payment of transaction fees to the tenant, the assignment of fees to the tenant would constitute a material change to the landlord- tenant lease agreement. This means that the landlord cannot suddenly or arbitrarily add payment of transaction fees to the tenant’s lease responsibilities.
For the change to become effective during the current lease term (the tenant assumes responsibility to pay transaction fees), an amended lease agreement must be drawn and both parties must sign their agreement to the change. A month-to-month agreement would require the landlord to give the tenant a 30-day notice to implement the change. A tenant wishing to renew his lease will be subject to the new terms and conditions of the lease agreement (fee assessment to tenants) as required of new tenants.
Landlords are also advised to conduct due diligence with their state’s landlord-tenant statutes regarding required landlord disclosures to rental applicants prior to or at lease signing.
As a best practice a landlord should always review with the new tenant during orientation all terms and conditions of the lease agreement, relevant lease clauses for rental policies and procedures and all obligations and responsibilities of the tenant including applicable fees, deposits, and recurring charges.
Closing
Newer technologies now provide a number of online payment options, moving many landlords towards a paperless rent collection. Online rent payment systems can offer efficiencies and features that many traditional collection methods cannot.
By choosing an online payment processing system a landlord can help reduce his operating expenses and help increase his property cash flow. In addition, many online rent payment systems offer the convenience of expanded customer services with 24/7 access to system options. Many consumers already pay their bills online and many tenants would prefer to pay rent online. In some markets, particularly large apartment complexes and/or upscale rental communities, online payment options are expected by tenants as another desirable amenity.
The choice of an integrated all-in-one system can deliver management reports, rent receipts, monthly tenant statements, payment history, past due reports, and rent reminder alerts on demand, helping to reduce administrative costs and provide real-time data for analysis and projections.
The type of rent payment/collection system the landlord chooses for his business should deliver collection of rents in the most efficient and effective manner that supports his business needs.