Prorated rent is when landlords only charge tenants for part of the month they occupy the rental unit. Prorating rent for tenants is a fair way of collecting rent. Not all tenants can move in or out on the first of the month. So, fair-minded landlords calculate partial rent payments based on the number of days the tenant lives there.
Of course, for landlords, charging rent based on full calendar months seems the easiest solution. But your tenant may not want to pay for an entire month’s rent if they don’t live there—especially if they don’t have any lease violations.
What are the benefits of prorated rent for landlords? Why do tenants prefer landlords who offer prorated rent charges?
This article tells you all you need to know about prorated rent.
What is Prorated Rent?
Prorating rent for tenants is a way to allow them to pay a partial month’s rent. The need for charging rent on a prorated basis arises when tenants move in or move out during a month. Landlords determine the days in the month the tenant occupies the rental property. You then charge a daily rent amount for the occupied days.
Here’s an example of prorated rent. Your tenant moves in mid-month. So, you would work out the number of billable days until the end of the month. During the tenancy term, you collect monthly rent payments based on your billing cycle. This is typically on the first of every month. However, your tenant gives you the appropriate notice that they are moving. However, their move out date is on the 8th. You would then calculate the prorated rent price for eight days.
Does the Law Require Landlords to Offer Rent Proration?
By law, landlords are not required to offer prorated rent charges. Prorating rent can help you collect rent for the first days or weeks of a tenancy until the first of the next month. Then, you can start your regular rent billing cycle. If a tenant decides to move out of the property mid-month, they are still legally liable for the full month’s rent.
Of course, if your lease agreement allows for prorated rent, you are then obliged to accept only part of the monthly rent payment. Also, in certain circumstances, some states require landlords to prorate the rent.
Often, tenants will want to negotiate rent proration if they’re going to move out in the middle of a month. So, then it’s up to you if you decide to accept a partial rent payment for part of the month.
Prorated Lease Agreement
If you decide to offer new tenants prorated rent based on their move-in date, it’s vital to include this in the rental lease agreement. The lease should state the daily rental rate for the part of the month. This period is the first day of occupancy until the last day of the month.
In some cases, landlords require that tenants pay in full for the first entire month and then prorate the second month. Calculating monthly rent in this way ensures the tenant can afford the rent while showing that you are a fair landlord. It also makes it easier for you to track the rent cycle of all your rental units.
What about offering prorated rent for move-outs that occur mid-month? Unless local laws require you to include this in the rental agreement, it’s up to you if you want to have it. Some landlords state that the tenants must pay for full rent for the final month. However, depending on the tenant, you could decide to offer prorated rental payment when they move out.
Why Prorating Rent Benefits Landlords
Prorating rent for your tenants has many benefits. Landlords who accept partial payments based on the number of days occupied generally have a good reputation. Also, it makes sure that your tenants see you as a fair and reasonable landlord.
Here are two excellent reasons to offer prorated rent in your lease terms.
1. Prorating rent fills vacancies faster
First, offering a prorated rent option means you can fill vacancies faster. Tenants may be put off moving into an apartment near the end of the month if they must pay for the entire month. The lower rent cost could entice tenants to choose your vacant rental unit over a similar one nearby.
2. Prorating rent results in a better landlord-tenant relationship
Including prorated rent in the lease contract is an excellent way to boost your reputation. From the tenant’s perspective, it’s only fair to pay rent for the days they occupy the apartment—even though the lease agreement says otherwise.
Also, tenants view landlords as trustworthy, fair, and responsible when they can pay prorated rent.
Tenants who only pay rent for the days in the month when they live in an apartment are more likely to recommend you after they move out.
The Formula to Calculate Prorated Rent
Working out the daily rental rate is relatively simple. The easiest way is to divide the cost of annual rent by the number of days in a year. The result is the daily rental rate. You then multiply that figure by the number of occupancy days.
Here’s an example of how to prorate the rent price for a partial month. Let’s assume that your tenant moves in on the 16th of a 30 day month (so only pays for 15 days of rent).
Prorated rent charge based on a yearly calculation:
- Monthly rent — $2,500
- Annual rent — $2,500 x 12 = $30,000
- Daily rental rate — $30,000 / 365 = $82.20
- Prorated rent charge — $82.20 x 15 = $1233
Prorated rent calculators are the easiest way to calculate partial monthly rent payments. Please read this article on the step-by-step methods to calculate and charge prorated rent to find out more.
Prorated Rent — In Conclusion
Prorated rent is an excellent way for landlords to provide the best rental service for clients. Calculating prorated rent is easy to do. Landlords who prorate rent usually find that they have fewer vacancies and better relationships with tenants.