All you need to know about prorated rent
A question that often arises: if the start date of a lease for a rental unit is not the 1st day of a month, how does the rent for the first period get prorated?
In other words, if you plan to start a lease or move into a rental apartment on the 8th or 14th of a month what rent should be paid for the first month? Should you really be expected to pay for a full month’s rent when you are not occupying the unit for the whole month? Or should just pay for the days you are living there, namely a prorated rent?
This can also be an issue for the last month of the leasing contract if, for some reason, the tenant moves out on, say 10th or 21st of a month.
What is prorated rent?
The definition of prorated rent can be that the first or last month’s rental paid for an apartment or multi-family rental is calculated proportionately. Basically, you won’t pay the total monthly rent specified in the lease contract, but only for how many days you occupy the apartment that month.
Why is rent prorated?
There are a variety of reasons why rent may be prorated, and some of these can be considered by looking at the different viewpoints of the tenant and the landlord.
A tenant usually wants to have his first month’s rent prorated and only pay for the days he is in occupation. Sometimes it’s simply not practical to start a lease on the 1st of a month. It may be that time is too tight between the tenant viewing the unit and wanting to move in, as it takes time to do credit and other checks, arrange and sign the lease documentation, etc.
Or, for example, it may be a tenant who will request that the rent be prorated as he is moving from out of state or relocating jobs and has to start a lease on a day other than the 1st. It could be that the tenant is moving from another unit owned by the same landlord and the previous tenant is only moving out on, say, the 7th. Naturally, the landlord needs time to clean and paint the unit before the new tenant moves in.
From the landlord’s point of view, for ease of administration, most landlords prefer to begin their rental collection cycle at the beginning of the month. This makes the calculation of rent so much easier. For example, it’s either $3,000 or $4,000 or whatever the case may be. Nice round numbers, nice clear lease start, and expiry dates, with no need to calculate prorated rent for tenants.
But it also makes it easier for the landlord's management of the tenancies if they all end on the 30th or 31st of a month. For a landlord with, say, 30 leases to manage, he can easily just look at the month-end dates to see how many leases expire, instead of having to check how many expire on the 12th, how many on the 16th, and so on.
Furthermore, in case any statutory or legal notices are required to be served on tenants it’s best to have them effective at month-end. With some months having 30 days and some 31 days, serving a notice mid-month can lead to debates or arguments about which day the notice actually is effective. Some notices are so-called “30-day notices” and it can be contentious if such a notice is served, let’s say on February 28th. With February only having 28 days, does the notice, therefore, expire on March 30th, or was it intended to be month-end March 31st?
When is rent prorated?
Although some states actually have local rules and regulations about prorated rent, in most jurisdictions to prorate rent is not actually required by law.
On balance, the majority of landlords will probably agree to prorate rent if a tenant starts a lease and moves into the unit on a day other than 1st. However, prorating the last month’s rent upon the expiry of the lease, or if a tenant moves out of the property earlier than the end of the month, is often more contentious. This might be especially so if the tenant elects to leave the unit earlier than planned due to his own reasons.
However, if, for example, the tenant is moving to another unit owned by the same landlord, there may be more flexibility in the decision whether to prorate the final month’s rent or not
In any event, the issues of prorating the first or last month’s rent should be covered in the lease contract or at least in writing in a separate document signed by the landlord and tenant
How to calculate prorated rent
So far, so good, everything clear?
But how do you actually calculate prorated rent? It all sounds fairly straightforward: the prorated rent for the first or last month of a lease should be the number of days a tenant occupies the unit, divided by the days in a month. This determines the daily rate.
The daily rate is then multiplied by the number of days the tenant will be occupying the property to generate the prorated amount for the partial month.
Sounds right? Well, yes and no. It’s basically right, but there are some slight variations and the exact basis for the calculation of the daily rent needs to be defined.
Some examples of how to calculate prorated rent
There are several ways to calculate the daily rent but first, the number of days in a month or year (the figure to be used to divide the agreed monthly rent to derive the daily rent) needs to be agreed.
The figure used may be the number of days in:
- the current month
- an average month
- a “banker’s month”
- the year
Some examples for each scenario
If the agreed rental is $2,000 per month:
- days in the month: 31 - then $2,000/31 equals a daily rent of $64.51
- days in the month: 30 - then $2,000/30 equals a daily rent of $66.67
- days in the average month: 30.42 (365/12) - then $2,000/30.42 equals a daily rent of $65.74
- days in a banker’s month: 30 - then $2,000/30 equals a daily rent of $66.67
- days in a year: $2,000 pm x 12 = $24,000/365 (days in the year) equals a daily rent of $65.75
This is the same daily rate as the average monthly calculation but which would, obviously, change slightly during a leap year of 366 days.
Although the variations in the daily rent appear slight, ie a $2 range between $64.51 to $66.67, when multiplied by the days of occupancy they can make a big enough difference to be considered material.
At the end of the day, the method of calculation of daily rent depends on the agreement with the landlord or the terms in the lease.
We've included a prorated rent calculator on this page for you to help in you calculating prorated rent for your particular scenario if you have a tenant who won't be moving in or moving out on the first of the month.
Calculate the prorated rent for a particular period
Calculating the rent for the prorated month means simply multiplying the daily rate by the number of days of occupation; for example:
If a tenant is staying for 16 days in a month multiply the daily rate by 16:
- using the 31-day month rent 16 x 64.51 = $1,032.16; or
- using the banker’s month rent 16 x 66.67 = $1,066.72
Even though the above calculation is straightforward, another issue that can arise is whether rent should be paid for the last day of occupation or check-out date. That is, if you check out at 9:00 am on the 15th, is that day counted as occupancy for calculation of the prorated rent? Or if you check out at 4:00 pm on the 15th, is that day counted?
By way of example, most hotels usually have a cut-off policy of 12:00 noon whereby occupancy before then is not charged (or is included in the nightly rate from the night before). For an apartment rental, this point has to be cleared at the outset of the lease.
Timing of payment of prorated rent
Once you know how the rent amount that you’ll be paying for the prorated month, the final issue to address is when to pay it.
Many landlords require the first month’s rent to be paid in full on or before the date a tenant moves in. In such a case, it’s common that the full month’s rent is paid plus the prorated rent for the first period of occupancy between moving in and month-end.
As an example, a tenant moving in on August 12th would pay a full month’s rent plus the prorated rent from August 12th-31st The next payment of the full monthly rent will then be due from October 1st as the period from August 12th-September 30th has already been paid.
When moving out, subject to the comment above about whether the last day is to be counted or not, prorating rent is usually a little less complicated. Tenants pay the agreed prorated amount at the beginning of the last month of occupancy.
