How You Can Go Wrong With A Grace Period

I spend a good part of my professional career parsing words trying to protect the self-storage industry to try to help protect Operators from other lawyers twisting what seem to be normal industry standard words into a lawsuit against your facility. Previously I have fretted about terms such as “surveillance” and “climate control”, “on-site managers” and “dry”, but I really missed one. That term is “grace period”.

How can a grace period be risky? It sounds like such a pleasant, innocent, and kind term. The Owner is extending a period of grace before imposing the wrath of a late fee or other charge. However, Operators can get into real trouble extending a grace period. That is because the timing of many state statutes is based on the number of days in default before you can take a certain action.

As an example, if you cannot by law impose a late fee until five days after the Occupant is in default, then when you say rent is due on a certain date and there is a number of days’ grace period, that grace period automatically extends the number of days in default before you can start take action. The same would apply if you cannot send a Default Notice until the Occupant is at least 30 continuously days late, if a late fee is imposed on the 5th day late and a five-day grace period is provided in the rental agreement, then arguably the late fee cannot be imposed until day 10, because you have included a five-day grace period. The grace period extends the default date to day 10 late.

This problem is easily fixed by deleting the term grace period from your rental agreement, a better way to state the proposition is: “rent is due on the 1st, Occupant is in default if rent is not paid by the first and a late fee is imposed five days after rent is due”. I recognize some of you do not collect rent on the day of the month the tenant rented, you would make your adjustments
appropriately.

This matters, because if you do not recognize this issue and you impose your late fee on the 5th day late or you send your default letter on the 3Oth day late and you weren’t eligible to because of the grace period. Your eventual sale, should it happen, is defective and exposes you to wrongful sale litigation.

Unfortunately, although grace period is a nice sounding term and the intent was never to cause
yourself any additional grief, the term “grace period” needs to leave your vocabulary and your
Rental Agreement right away.

Jeffrey J. Greenberger is a partner in the Cincinnati, Ohio law firm of Katz Greenberger & Norton, LLP. Jeffrey can be reached via email at info@selfstoragelegal.com or by phone at (513) 698-9350.

All views expressed in this article are solely the opinion of the author and shall not be construed as establishing any attorney-client relationship between the reader. The reader is encouraged to communicate with their own attorney should they have questions or comments and/or should any changes to policy or rental agreements be desired as a result of reading this article.