Seattle Caps Late Fees at $10 per month
Op Ed: The opinions expressed here are solely the opinions of Peter Nelson, CEO of Full Service Property Management. They do NOT represent those of the company or any of its staff.
In April the City Council for Seattle passed an ordinance capping late fees at a maximum of $10…for the whole month. Not $10/day, but simply a flat $10. This move mirrors similar laws passed in Burien, Seatac, and Auburn.
Councilmembers voting for the ordinance cited that late fees add to the problem of tenants fighting to keep up with spiraling housing costs. That is good political spin and justification. However, politicians are missing one very fundamental part of human nature.
It is called cause-and-effect. We all learn it at a very early age. Do something good and you get rewarded. Do something bad and you get punished. This phenomenon is at the very core of our existence, and yet politicians insist on legislating in total ignorance of it. Let’s look at this element as it relates to rental housing.
By limiting late fees to a paltry $10 they are encouraging “bad behavior” (i.e. late rental payments). Tenants with good payment histories will be encouraged to take a laissez-faire attitude toward when to pay rent and will rack up a history of late payments. That history will follow them around when they apply for a new home to rent or apply for a mortgage so they can buy a house. This in turn will make it more difficult for tenants to find good housing. Instead of helping tenants, it can be argued that Seattle’s new law actually hurts tenants.
There may be a scant percentage of tenants living so close to the line that normal late fees will push them out. We have not found that to be the case with our portfolio, but then we do not manage properties at the lower end of the spectrum. To be honest, not many landlords manage properties within the city at the lower end because the city does not have a lower end! Even in the toughest neighborhoods of Seattle rents are still in the teens, and require good cash flow to qualify to rent.
The new law wipes out landlords who charge excessive fees. I totally support that. We have taken over leases where the late fees were exorbitant. Fees like $100/day. Really? At the end of the month, that comes to $3,000+!! Nobody could or would pay those fees. On that score, capping late fees is a good idea. Some landlords simply do not know how to manage and charge excessive fees and need help from government. But this new law goes too far.
To induce good behavior from tenants, the late fee needs to be enough to get the tenant’s attention, but not so much that it seriously inhibits their ability to pay. At Full Service Property Management we have a late fee (in other cities besides Seattle) of 10% of the rent + $10/day. That is not overly burdensome. By mid-month, when most late pays are paid, that adds a couple of hundred dollars to the total due. Plus we often negotiate the late fee down. The goal here is not to make gobs of money off the late fees. The goal is to affect the tenants’ behavior by encouraging them to have good behavior (i.e. pay rent on time), and not get punished by late feesBy com.
On a related note, Seattle and other jurisdictions have passed laws making it more difficult for tenants to be evicted after exhibiting what society would generally agree is ‘bad behavior’. Politicians in their eagerness to help tenants never considered the long-term impact of this law. By compounding the legal remedy process that has been in place for centuries, politicians are creating a tenant population that will seriously limit the choices tenants have in the years ahead.
Verifications of rent are a normal part of the tenant screening process for probably 90% of landlords. Not being able to evict a tenant only compounds the problem. Landlords will be verifying rent by noting issues they had with this growing pool of tenants who have been encouraged by politicians to exhibit bad behavior without any immediate consequences.
The consequences will emerge in the years ahead!