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Not every tenant can move in on precisely the first day of the month.
Likewise, it’s rare that most tenants can move out exactly on the last day of the month.
Real life is messy, and sometimes landlords have to be flexible and accommodate tenants who can only move in or out somewhere in the middle of the month (and it sure beats turning away good tenants, just because they can’t move in at a clear-cut moment in time).
You could deal with this by collecting every month on the day the tenant moves in, but making rent due on the 12th of the month usually comes with more inconveniences than simply prorating a partial month’s rent, one time.
What Is Prorated Rent?
When tenants move into a rental property mid-month, common practice is for landlords to charge only for the portion of the month that the tenant is actually occupying the property.
Landlords do this by calculating the per diem (“per day”) rent amount, and charging accordingly. The math is easy, although there are two different options for calculating prorated rents – which we’ll get to in a minute.
Why Do Landlords Prorate Rent?
The short answer: To be fair.
After all, if a tenant moves in halfway through the month, it’s only fair that they only pay for the time they’re actually occupying the property, and not for the portion of the month when you were advertising it as vacant.
Of course, it’s not always that simple.
Is There Room for Negotiating Prorated Rents?
Everything in life is negotiable.
If the unit is vacant and available today, but the tenant can’t move in until halfway through next month, what do they do? They negotiate a deal that both parties can live with.
Perhaps the tenants want to move in a few days before their lease begins, when you were planning on doing preventative maintenance on your rental property. You could charge them a prorated rent amount to move in early, or you could negotiate a deal for them to pay something extra but not the full prorated rent amount, just so the tenant can be compensated for the inconvenience of having a maintenance crew in their unit after they’ve moved in.
Similarly, if the tenant asks for a few extra days at the end of the lease term, the landlord could charge prorated rent, or negotiate some other deal, such as the tenant doing minor maintenance work in exchange for a few free days’ rent.
The Prorated Rent Formula
There are two ways to calculate prorated rent, depending on the situation: by month and by year.
Most landlords will calculate prorated rent by month, because they typically charge rent by the month.
Prorated Rent by Month
To calculate prorated rent by the month, follow these simple steps:
- Divide the monthly rent amount by the number of days in that particular month. This will tell you the per diem (per day) rent amount.
- Multiply the per diem rent by the number of days the tenant will have possession of the property (partial days typically count as full days).
For example, let’s say Tammy Tenant asks if she can move in early, on the 20th of June. You agree, on the condition that she pays prorated rent for June. The rent is $1,200 per month, and there are 30 days in June, so you take the monthly rent amount of $1,200 and divide it by 30 days to reach the per diem rent of $40.
$1,200 / 30 Days = $40 per day
You then multiple the $40 per diem rent by the 11 days that Tammy will occupy the property (including the 20th), for a prorated rent charge of $440 for June.
$40 x 11 Days – $440 prorated rent
This method is the easiest for most tenants to understand, and less confusion means less conflict.
And of course – you can always use our calculator (at the top of this page) to run these numbers for you.
Prorated Rent by Year
Not every landlord calculates prorated rent by the month. After all, per diem rent in February is different from per diem rent in March. And not all tenants pay by the month; some pay by the week, by quarter or by year (and some may even prepay a block of time in advance).
Here’s how the math works when landlords calculate prorated rent by the year instead of the month:
- Calculate the annual rent by multiplying the monthly rent times 12.
- Divide the annual rent by 365 to determine the yearly per diem rent.
- Multiply the per diem rent by the number of days used.
In this example, suppose Tammy Tenant signs a six-month lease agreement, with the entire six months’ rent due up front. Again, she wants to move in on June 20th.
In this case, you would multiply $1,200 by 12 months to reach $14,400 annual rent.
$1,200 x 12 Months = $14,400 Annual Rent
You then divide $14,400 by 365 for a per diem rent of $39.45.
$14,400 Annual Rent / 365 Days = $39,45 per day
When you multiply this per diem amount by the tenant’s 11 days of occupancy in June, they will owe an extra $433.97.
$39.45 per days x 11 days = $433.97 prorated rent
The Quirks of Calculating Prorated Rent
Calculating prorated rent is not an exact science, because there are different methods that can be used, depending on the month, the tenant, the landlord and the situation. Since there are several variables at work, there are a few quirks that can come into play when prorating rent.
How Important Are the Number of Days in the Month?
As mentioned above, months vary from 28-31 days in length. That means the per diem cost in February will be higher than the per diem cost in March.
Some landlords simplify this by treating every month as a 30-day month (dividing the monthly rent amount by 30, regardless of how many days are actually in that month).
Sometimes tenants pay using other intervals other than months, such as quarterly or even yearly. In those cases, it makes more sense to use the yearly prorated rent calculation to come up with the per diem rent.
Are Landlords Required by Law to Prorate Rent?
According to TenantsUnion.com
There is no law that requires landlords to prorate rent when a tenant moves in or vacates a unit… …Landlords are not legally obligated to prorate the rent when you vacate, even if you don’t stay through the end of the month. If you are vacating in the middle of the month, you may be able to negotiate with your landlord to prorate your rent based on your move out date.
Of course, there may in nuances in the law that vary by state, but in most jurisdictions, prorating rent isn’t necessarily a hard and fast rule, but more of a negotiation point between the tenant and landlord.
When Should A Landlord Collect Prorated Rent?
At what point in time should a landlord collect this prorated rent?
When you tally up the tenant’s security deposit (typically a full month’s rent), plus the first full month’s rent (typically due at signing), plus the prorated rent amount – depending on what day the tenant moves in, this could add up to A LOT of money due at once… so what’s the best time to collect these various payments?
It depends on what the landlord and tenant negotiate.
If a tenant moves in three days before the end of the month and are only paying three days’ prorated rent, it typically makes the most sense to collect both the prorated and first full month’s rent at lease signing.
However, if the tenant is moving in on the third day of the month and paying nearly a full month’s rent prorated, they may request to pay them separately.
In that latter case, the landlord should still collect the security deposit and the first full month’s rent upon signing the lease agreement. The tenant then owes the prorated amount on the first of the month after they move in.
Thus, in the example above, Tammy Tenant would put down $2,400 – which would cover one month’s full rent (July’s rent) and one month’s rent as a security deposit. She would move in on June 20, and then on July 1 she would pay the $440 to cover her prorated rent for June. She would then start sending regular monthly rent payments of $1,200 starting on August 1.
If the landlord bills their tenant for utilities, this can add another layer of complexity to prorated rent payments.
It gets even trickier when the utility billing cycle is not based on a calendar month.
For example, if the billing period runs from the 25th of last month through the 24th of this month, the landlord would need to calculate the per diem cost of each utility bill and factor it into their tenant’s prorated rent payment accordingly (Note: be sure to keep a copy of the bill, in case the tenant requests a copy!).
If a landlord includes utilities with the rent, then it’s automatically included with the prorated rent. Alternatively, if the tenant puts the utilities in their name, it’s also a non-issue; either way the landlord won’t need to worry about prorating utility costs.
Prorating rent isn’t an overly complicated issue and all landlords should be comfortable with how these calculations work.
When a tenant asks to move in early or move out late, the most common way to approach it is by prorating their rent. But before you agree to letting a tenant move out late, make sure it won’t conflict with your ability to advertise and re-rent the unit quickly – it may be harder to find new renters who are able to move in on the fifth, rather than the first of the month.
What have your experiences been prorating rents? Do you use the annual or monthly method, and why?
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