Month: October 2018

Tenants: negotiate the default clause, not the late fee

Here’s a lease tip for small tenants: don’t argue about the late fee, but read the default clause carefully. Why? It’s not worth your time to negotiate a 10% late fee down to 5%. If you spend $400 of your time or your lawyer’s time arguing with the landlord and the monthly rent is $2000, then you have to be late with the rent four times before you break even.  Being late with the rent is a bad way to make up your business’s overhead costs.

You have a lot more to lose if the landlord can lock you out for a default. Why negotiate default and not the late charge? If you don’t pay on time and incur a late fee, you’re still in business. But if the landlord can lock you out without warning if you don’t pay on time, you’re out of business. Insist on a notice and a cure period before the landlord can change the locks. If you don’t, and if the landlord takes a dislike to you, then the landlord can call a minor breach a default, lock the doors on your business, leaving you without income but on the hook to pay rent until the landlord finds another tenant.

Propose a “three-strikes” clause: for the first two late payments in a 12-month period, the landlord must send you a notice of default and allow you a few days to pay the back rent and a late charge. Only with the third strike – the third late payment – can the landlord lock you out.