Rent Payment Options For Landlords and Tenants – Part 1
Rent Payment Options For Landlords and Tenants – Part 1
Rent payment options can encourage timely rent payment and help in reducing late rent or no rent.
Landlords should eliminate any obstacles to or excuses for tenants failing to pay the rent on time by making it easy for tenants to pay rent. However, making it easy for tenants to pay rent should not come at the expense of the landlord’s business.
Rent payment policy decisions should be made after careful research and analysis of available options and the true cost to the landlord’s business operations. There are many innovative and interesting rent payment services now available for property management but they may not be cost effective for independent landlords. The degree of risk as expressed in each payment service option should be acceptable to current business operations. Sufficient landlord resources of time and money will be required to support rent payment management systems.
While a landlord’s rental policies may express his preferred method of rent payment, a landlord in some states is legally obligated to provide alternative payment methods. While a landlord does not have to offer every type of payment option available, he does have to make available his payment options to each and every tenant. The landlord cannot selectively offer different options to different tenants.
The lease agreement should clearly state rent payment policies including amount, due date, payment method, late fees, dishonored check fees, etc.
Traditional rent payment options of cash, money order, or personal check are now supplemented by technology-based options for multiple devices’ platform applications. For many landlords, tenants pay rent by check. Other tenants prefer to use rental “apps” to schedule and pay rent electronically. What method tenants use to pay rent must conform to the rental agreement and the rental agreement, in turn, must comply with landlord-tenant statutes.
It can hold true that the simplest solution is the best solution. If adequate safeguards for safe handling of funds are in place and rental policies are enforced, any one of a number of payment methods could serve as the simplest and best solution to meet the needs of independent landlords.
In this part one of a two-part discussion on rent payment options the traditional rent payment methods of cash, check, and money order are discussed. A future article will discuss other options such as credit and debit card payments and electronic processing payment options. As technology changes, the marketplace changes, and such discussion of the so-called “apps” or other forms of online payments will necessarily be limited to those types of service available at the time.
Cash
Cash may be a simple method of rent payment but there are inherent risks for both landlord and tenant in cash payments. A cash only rent payment policy may not be allowed in some states by landlord-tenant statutes. There can be also be certain specific circumstances in some states that allow a landlord to require that rent must be paid in cash. If a tenant has presented a dishonored check (insufficient funds or stopped payment) for example, within the past three months, the landlord, with proper notice and documentation of a change in rent payment methods, can require the tenant to pay his rent in cash for a specified number of months before allowing the tenant to return to his former status.
A signed receipt for any amount of cash payment should always be given to the tenant with receipt detail documenting date received, tenant’s name, rental unit address, amount received, description of payment (rent, security deposit, late fee, etc.), and the time period covered by the payment.
Accepting cash for rent payment can make the landlord a tempting target for criminal activity. Care must be taken to protect the individual receiving the cash and procedures put in place to safeguard cash until deposited. A note of caution to landlords – if a tenant gives cash for rent and the cash came from an illegal act, such as drug dealing, under federal and state forfeiture laws, the government could seize the cash.
Likewise, there is risk to tenants when unscrupulous landlords accept cash for rent but “forget” the payment in an attempt to extort more money from the tenant. Without a signed, dated receipt the tenant has only his word against the landlord’s claim of non-payment.
A cash transaction for rent payment is a personal interaction between landlord and tenant, usually requiring a face-to-face meeting. Few tenants would mail a cash payment to the landlord or deposit cash in the landlord’s drop box. However such actions should not be discounted. A rent payment policy should clearly state the particulars of payment and the consequences of non-payment, including the burden of proof on the tenant for payment.
For cash payments, the landlord receives the benefit of ready money but must expend time and incur expense to meet with the tenant. These costs should be taken into consideration when developing payment policy.
Personal Checks
Accepting a personal check for rent payment has customarily been the simplest and most often used payment method. A check provides a clear record of payment. Account information contained on the check may also prove useful if the tenant defaults on his lease. Checks can be mailed or dropped off, limiting the amount of landlord-tenant interaction which some landlords may perceive as a benefit.
However, there is some risk when accepting rent payments in the form of personal checks. If the tenant has insufficient funds in his account, the check “bounces” causing additional work for the landlord in collecting his money. In addition, a bounced check creates additional bank fees for processing overdrafts which must be added to the amount the landlord will need to collect. If the tenant orders the check to be stopped (even if already deposited) the landlord now has to start over again in rent collection. Bank fees for stopped payments may also be incurred and will need to be included in past due amounts. Tenants should be aware that passing a bad check is a criminal offense that is aggressively prosecuted in all states. This provides significant leverage with a tenant when collecting on a bad check. A state’s Attorney General’s office can provide information on procedures to report bad checks.
Landlords should not accept post-dated checks. A landlord can immediately cash or deposit a check having the current or a past date. A post-dated check cannot be cashed or deposited until the date on the check. Not only can the landlord not obtain the funds on the date the check is received, but the longer period increases the landlord’s risk of never obtaining the funds.
A post-dated check takes on the properties of a promissory note. Accordingly, a bad post-dated check does not usually result in the writer being charged with a crime and the payee only has the recourse of serving a “pay or quit” notice or of suing for payment just as would be necessary to collect any other unpaid debt. This could mean in some states that a landlord has no legal to file an eviction action while the note is pending.
Cashier Checks
As a safeguard, some landlords require certified funds for move-in fees, deposits, and first/last month rents. A cashier’s check or a bank “counter” check is drawn made payable to the landlord that, when presented for payment, allows immediate collection of funds.
Third-Party Checks
Third party checks (even paychecks or IRS refund checks) and temporary or out-of-state personal checks should never be accepted for payment of rents or deposits. It is a better business practice to require the tenant to cash the checks and pay the rent in cash.
Money Order
A money order given for rent payment is processed in the same manner as a check payment. Money orders can be purchased from many retail outlets and government post offices. A financial institution may offer an equivalent service but use a different term to describe the money instrument. A signed and dated receipt with all pertinent details should always be provided to the tenant for his payment.
Conclusion
While easy and simple payment methods may enable tenants to pay rent timely, the landlord must ensure such payment methods are reliable and provide an efficient, quick transfer of funds into business accounts.
In Part 2 of this series we will discuss the efficiencies and effectiveness of credit/debit card payments and electronic processing transactions that can meet the needs of tenants while supporting business operations.