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  • Writer's pictureJim Calvo

Unduly Expensive Mistake in Lease Agreements

For decades or perhaps centuries commercial leases universally discuss in one of the first few paragraphs tenants monthly rent payment obligation defining the amount: "tenant shall pay $1,000 per month in rent on or before the first day of each month." The statement of monthly rent is commonly followed by a late payment penalty provision, 5% late fee penalty for any payment not received by the fifth day or 10th days of the month. Many rent payment paragraphs will then include a long list of the forms of acceptable payment: check, certified check, money order, cashier's check, wire transfer, cash, ACH transfer, coin or currency and maybe even old dated language like "legal tender for public and private debts in the United States of America".

Mindlessly using this dated language in a lease is an expensive mistake. Landlords should begin all leases with the starting point that all lease payments are to be made by ACH transfer: "Tenant shall pay all rents by ACH transfer on or before the first day of each month. Tenant shall execute and deliver to Landlord an ACH authorization agreement in the form of Exhibit B attached."

ACH transfers save time and money. Processing checks and monitoring their arrival is a huge waste of time and expense. Cash strapped tenants will play games to delay payment resulting in multiple phone calls, emails and other messages craftily avoiding payment for a few days. The hidden costs to Landlords of this activity looms large.

Once set an ACH transfer can automatically recur for months or even years with minimal monitoring of increasing rates or adjustments. The added certainty of cash flow reduces time spent planning. Push back against ACH from tenants will sometimes result in other forms of electronic payments nearly as good as ACH. A small number of old school payors will insist on paying by check - however, primarily using ACH transfers for rent collection will incentivize your staff to find a way to convert the old timers when they see firsthand the advantages of ACH.

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