A Landlord’s Guide to Prorated Rent

When renting out a property, it’s essential to think about how rent is calculated when tenants move in or out mid-month. Is the entire month’s rent due even if they’re only staying for a portion of it? 

It’s unfair to charge your tenants a full month’s rent when they’ve moved in mid-month. A reasonable way to solve this confusing financial predicament is to charge prorated rent. In other words, you can charge them only for the number of days they reside. The terms of prorated rent vary between different landlords. Let’s discuss why it’s a win-win situation for you & your tenants when you decide to charge prorated rent under certain situations. 

What is Prorated Rent? 

Prorated rent means the rent is adjusted according to how many days a tenant stays in a rental during a month. It’s a fair way for landlords to charge tenants who don’t stay for the whole month. This adjustment is common when tenants move in or out mid-month. 

For example, if your tenant moves in on the 20th of a 30-day month, they’d pay just one-third of the usual rent. Similarly, if the lease ends before the last day of the month or if the tenant needs to stay a bit longer into the next month, prorated rent calculates the exact amount owed for that time. 

When Do Landlords Use Prorated Rent? 

Typically, rent is expected either at the beginning or end of the month. When tenants move in on a different day, landlords might charge rent based on that specific day each month. However, this can be confusing and lead to missed payments. 

A smarter approach is to prorate the rent, meaning tenants only pay for the days they live on the property rather than the entire month. 

Landlords commonly use prorated rent in situations such as: 

1. Tenants move in during the middle of the month 

Consider a scenario where a potential tenant’s school term ends on May 5, but their dream internship starts on May 23. They can’t move in on May 1, but they need to be settled before June 1. If they choose a move-in date of May 17, they’ll be occupying the rental for 15 days in May. Prorated rent enables them to pay for only those 15 days, rather than the full 31 days of May. 

2. Tenants legally break the lease early due to situations like violation of health standards 

As landlords, we naturally anticipate that tenants will enjoy a safe stay in our rentals. Nevertheless, circumstances may arise where this isn’t the reality. For instance, if a tenant needs to vacate the rental prematurely due to health concerns, implementing prorated rent ensures that they aren’t charged excessively for the portion of the month they were unable to occupy the property unexpectedly. 

3. Tenant extends their stay a few days after the end of the lease 

Sometimes unexpected events like falling ill during your move-out period or landing a great job offer from your internship company might require extending your rental. Regardless of the circumstances, prorated rent ensures fairness in payment as you prepare to vacate the property.  

How to Calculate Prorated Rent? 

To charge prorated rent, the rate is calculated on a monthly or yearly basis depending on the lease term. 

1. Monthly Prorated Rent

Determining the prorated rent accurately monthly can be complicated, as the number of days per month varies. The monthly prorated rent can also be calculated as per the banker’s month (30 days) or as an average month (31 days). Here is how it is calculated: 

•       Divide the monthly rate by the number of days in a specific month to find out the daily rate. 
•       Multiply the daily rate by the number of days your tenant stays. 

Here’s an example of the prorated amount calculation for a month with 31 days when a tenant occupies the unit for 15 days: 

•       Step 1: $800/31= $25.80 
•       Step 2: $25.80 x 15 = $387 

2. Yearly Prorated Rent

When you have a tenant with a year-long lease agreement, the prorated rent should be calculated yearly. Here is how you can calculate it accurately: 

•       Multiply the monthly rent amount by 12. 
•       Divide the yearly amount by 365 to find the daily rent. If it is a leap year, divide the amount by 366 days. 
•       Multiply the daily rent amount by the number of days the resident will occupy the apartment. 

Here is an example of the calculation process for determining the yearly prorated rent when your tenant moves in after 10 days: 

•       Step 1: $1000 x 12 = $12000 
•       Step 2: $12000/365 = $32.87 
•       Step 3: $32.87 x 10 = $328.7 

You can even rely on prorated rent calculators that are easily available online. 

Benefits of Prorated Rent 

Here is the list of benefits of prorated rent: 

1. Cost Savings: Prorated rent allows landlords to save money by only charging tenants for the portion of the month they occupy the rental property. This is advantageous for landlords as they can avoid the loss of potential income from vacant days in a month. 
2. Flexibility for Short-Term Rentals: Prorated rent offers flexibility for landlords, especially in short-term or mid-term rental situations. Instead of requiring tenants to pay for entire months, landlords can adjust rent payments based on the actual duration of the tenancy. This flexibility can attract tenants seeking short stays and ultimately lead to higher occupancy rates. 
3. Maximizing Revenue: By implementing prorated rent, landlords can maximize revenue from their rental properties. Rather than losing income from vacant days or requiring tenants to pay for full months, prorating rent ensures landlords receive payment for every day the property is occupied, thus optimizing rental income. 
4. Competitive Pricing: By providing a fair and flexible payment structure, landlords can attract tenants who may be deterred by the prospect of paying for days they won’t use. This competitive pricing strategy can help landlords secure tenants quickly and maintain high occupancy rates. 
5. Avoiding Daily/Weekly Rate Fees: Prorated rent eliminates the need for landlords to implement daily or weekly rental rates, which can often come with additional administrative overhead for tenants. By following to a prorated monthly rent system, landlords streamline the rental process and ensure transparent and straightforward payment terms for tenants. 

Importance of Prorated Rent in Lease Agreements 

We recommend that every lease agreement should have a clause stating how the prorated rent will be charged. Landlords can customize the terms and conditions of prorated rent in their lease agreement to make it foolproof. Though property owners in California don’t need to charge prorated rent, it is a common practice for building a reputation as a reasonable landlord. Also, not only will you be able to keep your tenants happy, but you’ll also witness a lower turnover.    

Conclusion 

Ensuring fairness in prorating rent is crucial for maintaining a positive relationship with your tenant and upholding your reputation as a landlord. This is particularly important for new tenants as it establishes the framework for future dealings with them. 

When prorating rent, it’s important to handle the first month’s rent and security deposit separately. Security deposits have distinct regulations from rent payments. 

While it’s understandable to want to avoid vacancies, it’s equally important not to compromise on tenant screening for the sake of a few days of prorated rent.   

If you need help with creating the best lease agreements that include prorated rent or have any queries related to property management, contact Beach Front Property Management.