How to Charge Prorated Rent: The Landlord’s Guide

As a property investor, rent is likely your biggest source of income and a major component of your cash flow. There are circumstances, however, where tenants may request to pay only a portion of the rent. It could be because they moved in late or moved out early. A loss of income, either temporarily or permanently, because of the COVID-19 crisis may also prompt this kind of request.

So, how should you handle those requests? Consider charging prorated rent, which can relieve financial burden on your tenant while still bringing in at least some money.

Doing so can strengthen the tenant-landlord relationship, which can lead to renewals and referrals. It shows your tenants that you’re fair and sympathetic to their circumstances and builds trust between you and them.

So, if the situation makes sense to prorate rent, offer that “discount” and get that relationship off on the right foot by establishing yourself as a fair and reasonable landlord from the start.

What Prorated Rent Is and When to Charge It

Prorated rent is just what it sounds like: a partial rent payment that can be set up for a number of reasons.

Prorated rent can be established for when a tenant spends a partial term in the property. This accounts for a late move-in or early move-out. Think about it. It might not be fair for a tenant to pay the entire month’s rent if they’re only occupying the unit half the time. Tenants may request prorated rent, but it’s ultimately the landlord’s decision, which should be formalized in writing.

It can also be established to help a tenant get through a rough financial period. For example, many landlords are turning to prorated rent to help tenants who have lost their jobs because of the current pandemic. Rather than see no rent come in, landlords are working with tenants to come up with financial plans that work for both parties.

While the federal eviction moratorium has ended, and some cities and states have lifted their moratoria, other places such as New York, still have one in place. Even in areas with no eviction restrictions, landlords are still reaching out to affected tenants to help them get through this crisis and to keep from having to evict and find new tenants.

Finally, a landlord may prorate rent to make up for inhabitability of a property. If something goes wrong with the plumbing or electrical, for example, a landlord would prorate the rent minus the number of days it took to fix the problem.

Tenants Who Move In Late or Move Out Early

It’s common for tenants moving in after the first of the month to request prorated rent. It’s up to you to determine how far into the month qualifies them to pay a prorated portion. If they move in on the second, maybe you don’t charge a prorated rate. If they move in the 15th, however, and are only living in the unit for half of the month, it would be fair to prorate and ensure your tenant is satisfied.

However, that depends on the situation. If the unit is vacant and available for move-in, and the tenants choose to move in later, they might not have as strong an argument to ask for prorated rent.

You might also want to consider adjusting the rental period to make the period start on their move-in date. So, a tenant who moves in the 14th pays rent on the 14th of each month, and will move out on the 13th. That way, you avoid prorating, but it could end up complicating your process if you have multiple units on the same cycle.

If the tenant chooses to move out before the end of the month, they don’t have a great reason to ask for prorated rent, either. If no one is breaking the lease agreement, they are on the hook to pay rent for the month. However, if you’re requesting that they vacate prior to the end of the month, you should consider charging prorated rent. Some reasons why you’d need tenants to move out early include major maintenance or construction, if you’re selling the unit, or if you have new incoming tenants who have to move in early.

Tenant Inconvenience

In some states, a landlord is required to prorate rent for situations where the tenant is inconvenienced by a major issue in the unit. This might happen if there is a major roof leak, a plumbing problem, or a heating issue in the middle of winter. This is particularly true if the tenant paid for the repair.

Tenants Who Can’t Pay (for Now)

If a tenant has been furloughed or laid off, they may come to you to ask for relief on their rent. For that kind of prorating there’s no real formula to figure out what they should pay. It’s more about what they’re able to pay and how flexible you can be.

If your city allows it, you can set up a formal payment plan that your tenant signs. To do that, come to an agreement on how much rent your tenant can pay each month for a certain number of months. For example, it may be half the rent for three months or until they find employment. Once the prorating period is over, you can add the other half to the rent until the debt is paid off.

This is just one example of how to prorate rent for this particular situation, which is unique. Of course, it’s up to you how you want to handle prorated rents for tenants affected by the pandemic.

Should You Prorate Rent?

Prorating rent for the right situations can benefit your landlord-tenant relationship, creating long-term tenants who are happy to refer friends. It will help you secure a tenant by showing you’re flexible to their needs. If a unit has been hard to fill, prorating can also help you secure a tenant. By showing you have their best interests at heart, rather than your own profit, you’ll benefit long term with full units and desirable tenants.

How to Calculate Prorated Rent

There are two common ways to calculate prorated rent are by charging for the number of days the tenant spends on the property based either on the monthly rate or the yearly rate. You can do the math easily on your own, or use an online prorated rent calculator.

Monthly Rate

This is a two-step process:

Figure out how much daily rent would cost based on dividing the monthly rate by days in the month.

Multiply the cost of daily rent by days the tenant will spend in the unit for the month.

Here’s an example where a tenant spends 15 days of July in a unit that costs $950/month.

$950 / 31 = $30.65

$30.65 x 15 = $459.75

This is also how you would calculate prorated rent for tenant inconvenience.

Yearly Rate

If your tenant is signing a year-long lease or longer, this is a preferred way to calculate prorated rent. This is a three-step process:

Figure out how much rent costs for the entire year by multiplying the number of months by the cost of rent.

Determine daily rent by dividing the yearly cost by days in the year.

Multiply the cost of daily rent by days the tenant will spend in the unit for the month.

Here’s the same example as above, but calculated for the yearly rate:

$950 x 12 = $11,140

$11,140 / 365 = $31.23

$31.23 x 15 = $468.45

As a note, this extra step adds a layer of complexity that can confuse the tenant, but provides the most accurate amount for year-long leases. Either way you calculate it, make sure to be clear and transparent with your tenant to build that relationship of trust.

Prorated Lease Agreement Clauses & Laws

In most jurisdictions, landlords are not legally required to prorate rent when a tenant moves out early or if they can’t pay. This circles back to the lease agreement where the tenant committed to pay rent for the entire month. However, there are some laws that do stipulate a landlord’s responsibilities to prorate and how to calculate it, which vary by state. If you’re unsure about local legislation, consider bringing on a property manager who is well-versed in housing regulations and the jurisdiction’s property laws.

It’s a common practice for a landlord to require the first month to be paid in full, starting the rental period the date of move-in, and then prorate the second month to get back to the standard period beginning the first of the month. This is to guarantee the tenant is financially viable to cover the cost of rent while still being fair.

If you and your tenant have come to an agreement on prorated rent to accommodate move-in or move-out, include it in the lease agreement as well as the move-in date—using a standard lease agreement is not a good idea. Customizing your lease and putting it in writing protects both you and the tenant, and removes any ambiguity. This way you know how much money is going to be paid and when the unit is going to be occupied. Failure to formalize an agreement can put you at risk for a lawsuit or remove your opportunity to take legal action if there is an issue.

If your tenant can’t pay and you work out a plan, you should get that in writing, too. Even if you can’t set up a formal payment plan, it’s still a good idea to have a paper trail that captures exactly what was agreed upon for prorated rent and for how long.