However, there are instances where a property might be rented on a prorated rent basis, which may create some confusion among landlords and tenants. This arrangement is significantly different compared to standard rental agreements.
In this guide, we will walk you through the concept of prorated rent calculations, including what the benefits are of paying prorated rent and what factors landlords and tenants need to consider before accepting a prorated rental agreement.
KEY TAKEAWAYS
- Prorated rent refers to the amount of money paid equal to the duration of occupancy.
- Rent is calculated over time and not necessarily on a monthly basis.
- Prorated rent can help reduce monthly expenses for tenants and administrative burdens for landlords.
- A prorated rent clause may be included in a rental agreement following approval from both parties. For tenants, there’s nothing unfamiliar with paying rent monthly. All financial arrangements are dictated by the rental agreement signed with the landlord or property manager.
What is Prorated Rent?
Simply explained, prorated rent is the amount of rental money paid on a rental property in proportion to the amount of time a person occupies the property.
For instance, should a tenant move into an apartment on May 1, and decide to vacate the property on July 15, the tenant will only be responsible for paying the rental amount equal to two months and 15 days.
Prorated rent is broadly defined as a tenant paying rent for the amount of time they have lived in a property. This is a method of accounting that calculates the rent over time, and not necessarily on a month-to-month basis.
Applying prorated rent can be found in cities in Canada, the United States, and the United Kingdom. A landlord might decide to rent a property on this basis when there are periods of tenants occupying or vacating the property.
Keep in mind that the term “prorated” comes from “pro rata” which means “in proportion.” In many instances, both terms may be used interchangeably, or only one of the two definitions may be used in a rental agreement.
How Does Prorated Rent Work?
Depending on the agreement outlined in the lease, prorated rent may be included as a clause in a lease agreement that allows the tenant to pay only for the amount of time they occupy a property.
The amount of rent owed is calculated by dividing the full month’s rent by the number of days in the month and then multiplying it by the number of days used. An agreement between the landlord and tenant regarding an allowance on the prorated rent will be included in the lease agreement.
Calculating a prorated rent allowance may be based on the expected period a person will stay, how long it will take a landlord to find a new tenant, or the amount of time necessary to complete repairs or restorations on a property.
How Do You Calculate Prorated Rent?
Calculating monthly rent is an integral part of a tenant’s monthly financial obligations. Most tenants want to have a clear understanding of how rent they will be expected to pay and on which day of the month payment is due. A rental agreement will stipulate all of these obligations.
However, a prorated property may follow a different structure and may lead some tenants to wonder how much rent they should pay for a prorated period.
Methods to calculate prorated rent:
- Using a 365-day year as the basis.
- Using the days in an average month.
- Using a banker’s month.
- Using an online Prorated Rent Payment Calculator.
- Using the monthly payment method.
In the following section, we will explain each of these methods in more detail.
1. No. of days in the year
This method is based on the total number of days in a year (daily rent) and allows landlords to calculate the prorated rent amount for a rental property that has been rented for 30 days.
For example:
- A property is rented at $1,000.
- The total annual rent: $1,000x 12 months = $12,000 annually.
- The daily rate: is $12,000 / 365 days = $32.80 per day.
- Multiply the daily rate by the number of days a property is occupied: $32.80 x 10 = $328.
2. No. of Days in an Average Month
This method uses the typical length of a month, rather than the specific value of 30 or 31 days. Instead, this calculation uses an average of 30.24 days for simplification.
For example:
- Rent is prorated by dividing the number of days in a month by 30.24.
- The lease ends on May 1. There will be 10 days remaining until the end of the month.
- $1,000 (monthly rent) / 30.24 = $33.06 daily rate.
- $30.06 x 20 days (amount of days rental was occupied) = $661.37 prorated rent.
3. Banker’s Month
This method uses a banker’s month to calculate the prorated rent. The total number of days in a banker’s month is 30 days. This method bills a tenant based on the day and time of month they occupy the property.
For example, should a tenant occupy a property from the 15th of the month, their first day of rent will be calculated from the move-in day until the end of the 30 days.
In this instance:
- $1,000 / 15 days = $66.66 per day.
Should a landlord have rented a property within 15 days before a new tenant’s move-in date, the tenant would have to pay a pro-rata rate for those additional.
For instance:
- $66.66 rate per day / 15 days unoccupied = 4 days rent due.
- 4 x $66.66 = $296.23 to cover the 15-day unoccupied rent.
4. Monthly Rent
Depending on the agreed-upon move-in date, and arrangements made in the rental agreement, landlords and tenants will need to know what the prorated rent amount on a property is to ensure that the right amount is paid each month.
There may be instances when a lease agreement does not clearly outline prorated rent specifications. This should not be a common occurrence, and tenants should ensure that they communicate with a landlord or property manager beforehand to calculate the rental amount.
The following example may be used to calculate the prorated monthly rent for a rental property.
- Annual rent: $10,000
- Period of lease agreement: 2 years
- Move-in date: 15th of the month
- Calculate the monthly rental amount: $10,000 / 12 months = $833.33 per month
- Multiply monthly rental by the total months occupying the property: $833.33 x 7 months = $5,833.31.
- Total prorated rent outstanding for the remainder of the lease agreement: $5,833.31
5. Online Prorated Rent Calculators
An online calculator is one of the easiest ways to calculate prorated rent. Online prorated rent calculators help determine how much a tenant is expected to pay for rent in a given month.
These online tools can automatically calculate the amount of money a tenant may owe for each day and provide a total average for the month.
To calculate with an online pro-rata calculator, a person will need to provide the amount of time that has passed since the lease agreement started, and how much in rent a tenant has paid during that period.
How to Get Prorated Rent?
Having a prorated rent arrangement built into a lease agreement allows a landlord and tenant to settle on an agreement that favours their needs. Furthermore, this would promote fairness, equity, and trust.
Prorated rent agreements are suitable for situations where a tenant may decide to vacate a property before their lease agreement has expired.
For instance, a tenant decides to cancel a rental agreement halfway through June but plans to stay until July 15. This would mean that the tenant would only be responsible for paying a prorated rental amount until July 15 instead of paying for an entire month.
Similarly, should a tenant have paid in advance but cancel their rental agreement early due to unforeseen circumstances, a landlord would be required to return the rental payments made in advance and calculate a pro-rata amount for the remainder of their occupancy.
To obtain a prorated rent, tenants will need to consider the following:
- Review all rental agreements or records.
- Openly communicate with the landlord or property manager.
- Provide a proposed request for prorated rental.
- Maintain diligence and ensure that requests are in line with the circumstances.
What To Do When Your Prorated Rent Request Has Been Denied
A tenant may have the following options should their request for prorated rent have been denied by the landlord or property manager:
- Review the lease agreement: Always ensure that you have reviewed your lease agreement before communicating with a landlord or property manager. Consider whether any provisions allow for prorated rent in the event of a late payment or a particular breach of the agreement.
- Negotiate with the landlord or property manager: Another option could be to negotiate with the landlord or property manager about the possibility of requesting prorated rent. This includes existing rental agreements or those that are nearing maturity. Mention prorated rent to a landlord once yearly rent is in review or a lease is up for renewal.
- Seek legal advice: Should an agreement not have been reached with the landlord or any outstanding amounts still owed to you, then you should consider seeking legal advice. It’s always worthwhile to negotiate with a landlord before the time and ensure that a qualified individual is present to assist in the mediation process.
When Do Landlords Use Prorated Rent?
There may be circumstances where a landlord will need to make use of prorated rent to recoup any losses incurred on a rental property. A prorated rent amount is calculated based on various factors, including the time when a tenant concedes the rental agreement or the amount of time until a new tenant occupies the property.
Landlords may use a prorated amount to:
- Recoup the cost of an empty unit.
- Subsidize loss of rental income.
- Cover additional costs not included in the rental amount.
- Cover loss of rental not included in a full month’s rent.
Benefits Of Prorating Rent
Rent prorating is an agreement that allows a tenant to complete a “rent in advance” payment before occupying or vacating a rental unit. The amount is case-specific and will be influenced by the arrangements agreed upon in the rental contract.
Benefits for landlords
- Saves money on additional expenses (i.e. utilities) for empty units.
- Allows for increased rental predictability.
- More accurate accounting measures.
- Allows landlords to fill vacancies more efficiently.
- Promotes long-term rental agreements.
- Helps to create rental flexibility for unexpected circumstances.
- Allows a landlord to lock in higher rental fees from interested tenants.
Benefits for tenants
- Reduces living expenses.
- Allows for structured payment installments.
- Promotes increased financial flexibility.
- Provides flexibility for lease agreements.
- Increased involvement in financial responsibilities.
- Helps to streamline rental agreements.
Legal Considerations Of Prorated Rent
In terms of legal considerations, landlords and tenants will need to equip themselves with the necessary skills surrounding the legality of prorated rent, as well as the due process of including pro-rata rent as an addendum in a lease agreement.
- There are currently no laws or regulations surrounding prorated rent. Instead, it’s a matter that should be considered on a per-person basis.
- Prorated rent is legal, and there are no laws that restrict a landlord from denying a tenant’s request for prorated rent.
- Similarly, there are no laws outlined for or against a landlord agreeing to a prorated rent arrangement. Instead, this would need to be included in a rental agreement.
- Legality regarding prorated rent varies from state to state. Moreover, legal compliance may vary at the national or municipal level.
- In some U.S. states, guidance is provided on the practice of prorated rent. For instance, in the state of New York, prorated rent is only considered a legal practice if both the landlord and tenant have agreed to the arrangement in writing before signing the lease agreement.
- Legality regarding prorated rent is subject to local guidelines on whether a clause has been included in the lease agreement, and both the landlord and tenant have approved this clause.
- There are many instances where there are currently no laws available to govern the practice of prorated rent. This would need to be resolved and managed on an individual level, with both the landlord and tenant agreeing beforehand.
Factors To Consider Before Prorating Rent
Prorated rent arrangements may be included in commercial or residential lease agreements. Each scenario will be case-specific, with a tenant’s willingness to agree and pay for a prorated rent.
These actions may depend on several factors, including:
- How long a person occupied a unit.
- Desired move-out date.
- The date on which the rent is paid.
- The formal start and end dates of the lease.
- Are there any pre-existing conditions about prorated rent?
- The amount a landlord expects a tenant to pay.
- The cost of the overall process.
- Considerations once a tenant has vacated the property early.
It’s advised that tenants openly communicate with a landlord or property manager should they be unsure about the remaining balance based on any amount previously paid and the number of days remaining on the lease.
Practical Tips for Prorating Rent
Prorating rent can help to uncomplicate financial obligations for landlords and tenants. However, there are several considerations to take into account when thinking about including a prorated rent clause in a lease agreement.
Here are some of our professional tips:
- Frequency: As a landlord, think about your financial needs and whether prorating the rent on a rental unit will align with your near and long-term goals.
- Payment Structure: Consider the payment structure or frequency. Some tenants would prefer a monthly payment, while there may be those who seek a quarterly or annual payment plan.
- Length of each period: Next, decide how many days each payment period will cover. This should include the number of days that will be subtracted at the end date of each payment period and before payment is due.
- Start small: As a new landlord or someone that may be new to a prorating rent schedule, start with smaller amounts rather than taking on a large sum. This is not only important for landlords but for tenants as well.
- Landlord approval: For tenants, make sure that a landlord has approved a prorated rent schedule ahead of time. Additionally, all new terms and conditions in the rental agreement must be included.
- Refusal of proposal: Should a landlord refuse the suggested proposal consider negotiating with them to find a suitable solution that suits both your financial needs.
- Ask questions: Whether a landlord or tenant, always make sure to ask the right questions, before and during the signing of the rental agreement.
- Alternative solutions: Though prorated rent may be a suitable option for some landlords or tenants this is fortunately not the only solution available, and there are alternative options that might be more suitable for the circumstances.
FAQs
Is Prorated Rent Based on 30 or 31 Days?
The answer depends on the lease agreement. When calculating prorated rent, the number of days you use is based on the number of days in the month. Whenever you use 30 days, you’ll have to divide your monthly rent by 30 and then multiply that by the number of days used. You can also use 31 days to account for a leap year. Most of the time, rent is prorated based on 30 days, so if your rent is due on the 1st day of the month and you move in on the 15th, your landlord will prorate your rent based on 30 days.
What is a Prorated Refund?
A prorated refund is a reduction of rent that occurs when a tenant leaves mid-lease, and the landlord has to re-rent the unit. It is calculated by dividing the remaining rent due by the number of days left in the lease term and then multiplying it by what was paid by the tenant.
For example, if a tenant moves out on day 1 of their lease term, they would receive a full refund for the remaining balance; however, if they move out on day 60, they would receive a prorated refund of 40% (60 days divided into 90 days).
Is Prorated Rent Normal?
Prorated rent is a common practice, but can be confusing to renters unfamiliar with this practice. As a tenant, it allows you to pay less than the total rent if you move in partway through a month or during the middle of a month.
However, in the landlord’s case, prorated rent is standard when you sign a lease for a new apartment. This means the landlord will calculate how many days are left in your old lease and charge you for those days. It’s not uncommon to pay prorated rent when moving out of an apartment.
How is Room Rent Calculated?
Room Rent Calculations depend on the size of the room and the number of people occupying a room. This can be calculated by dividing the total room rent by the number of people staying. You may also have some say in what amenities are included in your rental agreement, such as parking spaces or storage lockers for bikes or other belongings.
Furthermore, room rent can be calculated by using the square footage of a room. This involves determining the value of each square foot. For instance, a landlord may rent a 400-square-foot room at $400 per month, which would see the tenant pay $100 per month for every 100 square feet of space.
Conclusion
Prorated rent has become a popular benefit that allows tenants to have increased financial flexibility in their rental agreements, while landlords can be assured that they will continue to have a stable stream of rental income should a unit be vacated ahead of the lease agreement.
However, there may be several drawbacks to using prorated rental agreements, and it’s important that both landlords and tenants understand the conditions before signing a lease agreement.
This article helped to cover all the basics and several benefits of prorated rent agreements. Whether a landlord or tenant, it’s advised to stay informed, and up to date with recent developments reading the rental market, and how a prorated rent may benefit your finances.
