What is Prorated Rent and How to Calculate it?

What is Prorated Rent and How to Calculate it?

This article explains the concept of prorated rent, meaning the proportional rent, which the tenants have to pay only for the number of days they have occupied the property.
Some years back, while in college, I had rented an apartment along with some of my friends. We moved in the apartment on 7th of June that year. It was a big apartment and in the heart of the city, so obviously the rent was high. We had no idea about the concept of prorated rent then. We paid the rent for the entire month of June, ignorant of the fact that we were not required to pay for the first 6 days.

Now, when I know this concept, I look back and feel, we could have saved some money for that month, and caught up with two extra movies. Those days, two movies was a big deal given the limited allowance we received. So, this article's purpose is to save you from shelling out those extra bucks unnecessarily. Now, let us understand this concept in more detail.

Definition of Prorated Rent

The dictionary meaning of the term prorated is to allocate or assess pro-rata, which means allocation proportionately. When applied to the rent, it simply means to calculate and pay the rent in proportion to the time period of usage of the rented commodity. Let us take a very common example.

When we rent an apartment, we do not necessarily occupy it from the 1st of any month. As happened in my case, if you occupy an apartment from the 7th of the month, you need not pay the rent for the first 6 unoccupied days. You will need to calculate the proportionate amount for the number of days you are going to stay in the first month, and pay only that sum to the owner. You can make the provision for this in the house rental agreement, so that there are no legal hassles later.

It is also important that the owner understands this concept, since many times it can happen that the tenants are not well-behaved and may be a nuisance to the neighbors, or the property owner may want to market his property for better prices. In this case, the owner may go in for a month to month rental agreement with the tenant, or even serve a notice to the tenant to vacate the apartment before the expiry of the lease.

This clause should be specified in the lease agreement beforehand, giving the right to the owner to get his property vacated on account of problematic behavior. So even if a lease may generally end with the end of the month, the owner can charge for the occupied days and get his property vacated. So, now that we have understood this concept's importance, let us understand how it is calculated, using simple mathematics.

Calculating Prorated Rent

Consider that the monthly rent for an apartment is $1000. You decide to move in on the 7th of June. Following are the simple steps to calculate the rent for your June occupation of the apartment.
  1. Calculate the number of days in the month which you are going to occupy the apartment. In our example, the month is June and your starting date is the 7th. So, as there are 30 days in June, including the day when you move in, we get
    The number of days occupied = 24.
  2. Now, calculate the per day rent for that particular month simply by dividing the monthly rent with the number of days in that month.
    Per day rent = $1000 ÷ 30 = $33.3333 .
  3. Multiply the per day rent (step 2) with the number of days you are going to occupy the apartment, which we got in step 1.
    Prorated rent = $33.3333 × 24 = $800.
It may so happen that you may move in one month, say 25th May, and the rent is due in the middle of next month, say June 15th. In such cases, what you have to do is prorate the rent for the months of May and June separately using the steps given above and simply add them up. Here, the daily rent per month will come out differently, as May has 31 days and June has 30. So, the major factors to keep in mind are the number of days in the particular month (double-check the February month for a leap year), number of billable days and the daily rent. Most importantly, round-off the decimal places only for the final amount to avoid major deviations.

Sometimes, the owner may ask you to pay the entire rent for the first month, and take the prorated amount of the first month with the second month's rent. Owners do this when they are not sure about the tenant's credit. But, if you have good credit and references, there is a very little chance of such a scenario. It is primarily at the owner's discretion. Also, understand that the security deposit is never prorated as the deposit is one month's rent taken in advance, for the safety of the owner's continual income from the property, in case the tenant vacates the property before the lease expires.

Prorated rent, thus, ensures that you don't shell out the extra money for the time when you have not occupied the property. The proportional calculation helps the tenants and the owners in equal measure. I hope this explanation helps you in the next rental agreement you do.