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How to Handle Tenants Who Give Partial Payments

Jon Fesmire | November 2, 2017 @ 10:41 AM

Partial payments from tenants can be tricky. On the one hand, you surely understand how a tenant can go into a financial slump and. On the other, you may be unsure what that could mean for your facility. What if the tenant isn’t able to complete the payment? Won’t a partial payment just delay your ability to put their unit on auction?

We’ll explore those answers here, and how you can both help your tenants who have fallen on hard times, and still protect your business.

Avoid Sending a Unit to Auction

One of your goals, as a self storage operator, should be to avoid having to send units to auction, and there are several good reasons for this. It’s extra work for you and your facility. Auctions are an attempt to recover rental money lost when nothing else has worked, and most of the time your facility will make less money on an auction than it would have if the tenant had simply paid their rent every month. Finally, a self storage unit can contain important items that the tenant spent a lifetime acquiring. In extreme cases, it may contain everything that person owns, everything they will need when moving to a new home.

Consider it from the tenant’s point of view. Perhaps they are going through a divorce or just lost a job, and expenses are piling up. Start from a position of compassion and let the tenant know you’re willing to work with them.

One option is to accept a half payment for one month, and for the next month, have them pay their regular payment plus, say, 10%. Over the next five months, if they continue this, they will be caught up with what they owe. That may be all they need to do. Perhaps they are just going through a rare, difficult month. They will be grateful to you, especially when they are able to bring their account current without ever experiencing the risk of their unit going to auction.

The Risks

Yes, when taking a partial payment, you risk never receiving the full amount. If the tenant doesn’t pay what they owe in the agreed-upon timeframe, it’s time to follow legal procedures to bring the unit to auction.

When things go this far, you may wish to stop taking partial payments. Require that the tenant honor the payment arrangement. If they are able to pay the full amount due before the unit goes to auction, then the auction process gets canceled. If not, then you inform them that by making only partial payments they’re causing a hardship on your facility and that they are only delaying the normal legal process.

Consider the Tenant, But Don’t

When deciding whether or not to allow a tenant to make payment arrangements, consider that customer’s history with your facility.

How long has the tenant had a unit at your facility? Have they always paid on time? If they have been renting from you for a while, say six months or more, and always pay on time, then it makes perfect sense to work out an arrangement with them.

Something else to consider is unit size. Are they renting a unit that your facility has plenty of? If so, then there’s not a lot of competition for that unit size, and it would be better for your facility to keep getting partial payments, rather than having the unit stay empty.

At the other end of the spectrum, consider a tenant who moved in on a $1.00 move in special, immediately stopped making payments, and whose unit is about to go to auction. If they come to you asking to do a partial payment plan, it would make sense to say no.

The problem here is that if you allow one customer to do a partial payment plan, you can get hit for a discrimination suit if you don’t allow another to do the same. Because of this, you should have one type of partial payment arrangement, and stick to it. Each customer gets one chance on it. If they fail to stick to it, the auction procedures begin and continue, unless they are able to pay the account in full. However, the next time they default, they get no partial payment option.

Due Date and Partial Payment

Each tenant will have a due date, based on their date of move-in, and a grace period, before late charges apply. Let’s say that grace period is 10 days.

Suppose that one month, your tenant receives a paycheck the day before his rent is due, but because of various factors and bills, he can make a partial payment, but not a full payment. Allow him to do so, with the stipulation that, if the rest of the payment does not get made after the grace period, he will owe the late charge. This actually works in your favor, as otherwise, the tenant might have waited another week to pay the entire bill. You will have part of that payment in your facility’s account.

This, of course, is different than not being able to make a full payment the month that payment is due. This is simply the tenant making their payment within the grace period, but splitting it for the purpose of better managing their money.

If you’re working on your partial payment policy, we hope this information helps. Research the related laws in your state, or consider talking to a lawyer, to ensure that your policy is legal.

Jon Fesmire

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