Grace Period for Renters is Good Business for Landlords

Robert S. Griswold | Steven R. Kellman | Ted Smith
08-July-2001 Sunday

This column on issues confronting renters and landlords is written by Counselor of Real Estate and Certified Property Manager Robert Griswold, host of Real Estate Today! with Robert Griswold (10 a.m. Saturdays on AM1130 - KSDO radio, or on the Internet at www.retodayradio.com), and by attorneys Steven R. Kellman, director of the Tenants' Legal Center, and Ted Smith, principal in a law firm representing landlords.

QUESTION: Recently, my landlord sent a notice to tenants saying that the rent is due on the first of each month without a grace period. He used to give us five days to pay, but after several years he changed it to three days. I thought that was reasonable especially if the first falls on a weekend and tenants may be gone for the weekend. Is it common for a landlord not to provide a grace period?

ANSWER: Griswold: It is fairly common for rental property owners to offer a grace period. Typically, a three-day or five-day grace period is offered. As you correctly note, it is perfectly legal for a rental property owner to require the rent payment in full on or before the first of the month and not offer any sort of grace period.

Even with a grace period, the rental property owner legally has the right to serve legal notices regarding nonpayment of rent. I have seen many examples of rental property owners tightening their policies and rules, including a reduction or elimination of grace periods.

I think a three-day grace period is a good business practice and one that does not impose an unreasonable burden on the rental property owner. It also can avoid claims of discrimination because a rental property owner that does not apply a late charge policy consistently could be accused of treating tenants differently or discriminating.

With such a harsh rent-collection policy, a rental property owner should enforce the policy with all renters equally, which would clearly create tension with some of the best renters who are inevitably going to be late with their rent payment occasionally.

Your landlord is being too aggressive in my opinion and should seriously consider retaining the current policy, as the rental market may not always be so strong. I believe that the rent is a very important tenant obligation, but rental property owners need to be fair and reasonable.

Your landlord most likely has a grace period for the payment of bills, including mortgage. I recommend a three-day grace period that expires on the third of the month even if it falls on a weekend or holiday. I believe that the extra three days is reasonable and avoids problems with good tenants that just miss paying on time.

Renter's insurance

I just received a letter from the company I rent from which says, "Prior to signing your new agreement, you will need to provide proof of renter's insurance. Your renter's insurance policy must contain personal liability insurance in an amount not less than $100,000 and be maintained for the duration of the lease." Must I do this? There was nothing about it in my original lease.

Griswold: Yes. When signing a new lease or after proper legal notice for a month-to-month rental agreement your landlord can change the terms of the agreement to require you to have renter's insurance. Remember that each time a lease is renewed or every month on a month- to-month rental agreement is an entirely new contract in which both parties must agree on all terms or either party can terminate the relationship.

I strongly recommend all tenants have renter's insurance to protect them from loss or damage to their personal property as well as liability claims. The landlord's insurance does not cover your losses unless you can specifically show that the landlord was negligent.

Of course, prudent landlords also benefit by requiring tenants to have a renter's insurance policy since typically there are fewer claims made against their insurance policy if the tenant has proper coverage. For many years, it was extremely difficult to find good and affordable renter's insurance coverage, but the market has improved significantly.

While renter's insurance may not be something that you anticipated in your budget, it makes sense for both tenants and landlords and is just as important as having insurance on your car!

More money

I have a single-family house renting for $1,300 a month under a one-year lease. I found out that the rent is far below market. I intend to raise the rent to at least $1500 a month after the lease is over.

But the contract says "that occupying the house after the lease period the rent will be $1,400 month to month." What should I do? Can I force them to sign another lease at a higher rent?

Griswold: The clause in your lease that increases the rent upon lease expiration from $1,300 to $1,400 per month is referred to as a holdover clause. A holdover clause is designed to encourage the tenant to renew the lease.

The holdover rent is typically set at a much higher, but reasonable, rent level that would exceed the current market rental value for the property. However, in your case, the holdover rent is below the market rent. Thus, your tenant may prefer to stay on a month-to-month and will gladly pay the holdover rent of $1,400 per month.

I would suggest that you send the tenant a written notice legally terminating the lease upon expiration. You can also include an offer of a new lease at the current market rent of $1,500 per month. Most tenants will accept the new lease terms.

Of course, if your tenant does not sign the new lease and attempts to tender payment at the $1,400-per-month rate, then you should return the rent payment and immediately serve the tenant with an unlawful detainer. So while you cannot force them to sign the new lease, you essentially give them a choice of paying the current market rent or vacating the property.

IF YOU'RE A TENANT OR LANDLORD, the authors stand ready to answer your questions in this column, although letters cannot be answered individually. Write them at: Rental Roundtable, Homes Section, San Diego Union-Tribune, P.O. Box 120191, San Diego, CA, 92112-0191. Or you may e-mail them at rgriswold.sdut@retodayradio.com

Copyright Union-Tribune Publishing Co.

Back to 2001 Rental Roundtable Index

Robert Griswold and the Real Estate Today! radio show strongly support the intent and the letter of all federal and state fair housing laws. As a reminder to all owners and managers of real estate, note that all real estate advertised is subject to the Federal Fair Housing Act, which makes it illegal to advertise "any preference, limitation, discrimination because of race, color, national origin or ancestry, religion, sex, physical disability, or familial status, or intention to make any such preference, limitation or discrimination." Additional state and/or local fair housing laws may also apply. Be sure to inform all persons that all dwellings offered or advertised are on an equal opportunity basis.

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Revised and Updated - Wednesday, April 26, 2006

Robert S. Griswold, CRE, CPM, CCIM, PCAM, GRI, ARM
Griswold Corporate Center
Griswold Real Estate Management, Inc.
5703 Oberlin Drive, Suite 300
San Diego, CA 92121-1743
Phone: (858) 597-6100
Fax: (858) 597-6161
Email: rgriswold.ret@retodayradio.com