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| Tuesday, July 07, 2009 |
| Prorated |
I am on vacation this week, but it has turned into a staycation/workcation since my basement tenant moved out at the end of the month and I have been getting the unit ready for my new tenant to move in this weekend. I am pleased that I was able to find a new tenant and negotiate some vacant time for the apartment. Since purchasing this house five years ago I have had two tenants living in the basement apartment. The first stayed for a year and I had less than twelve hours between that tenant moving out and my last tenant moving in - just enough time to clean. My last tenant stayed for four years - so this week or so of having the apartment empty has been a great opportunity for me to get re-acquainted with the space.
But this gap of a few days caused an interesting conversation between myself and my new tenant when we sat down to sign the lease. Since my new tenant would not be using the apartment for the full month of his first month of occupancy, I pro-rated his first month's rent. We had discussed my wanting some time to do some work on the apartment and had agreed on his move-in date prior to sitting down for the lease signing. But he showed up to the table with his checks already made out and he tried to give me the full amount for his first month of rent. I quickly grasped that he had not understood in our previous discussions what I had meant when I said that I would be prorating his rent. A bit surprising since he has been a renter for at least a decade - but I had to explain it to him and he then happily wrote me a new check for the first month's rent.
After that little experience I though it might benefit others out there to provide a short lesson on what it means when you start or end your lease term on less than a full month.
pro·rate (pr-rt, prrt)
v. pro·rat·ed, pro·rat·ing, pro·rates
v.tr.
To divide, distribute, or assess proportionately.
v.intr.
To settle affairs on the basis of proportional distribution. Most people think of renting just in round monthly rent terms. This is understandable since you price and shop apartments based on the month rent figure. Once you move-in to a space you send your landlord monthly checks. But look at your lease. It may talk about how much you should send your landlord monthly and when that amount is due, etc. But it should also spell out the full term of your lease. For most folks that is a one year fixed lease. But the term of the year should be spelled out with exact dates - when you move in and when you move out.
Example:
One year fixed lease for $1,000 per month starting September 1, 2009 and ending August 31, 2010.
This lease covers 12 full months so by signing you are committing to paying $12,000 to the landlord during the term of this lease in monthly $1,000 increments.
Example 2:
One year fixed lease for $1,000 per month starting September 8, 2009 and ending August 31, 2010.
This lease covers less than 12 full months. Eleven full months at $11,000, but now we have to figure out how much to pay for the first month. To figure out the prorated amount simply divide the full month rent amount by 30 to get your per day rent and then complete the equation.
$1000/30 = $33.33
$33.33 x 7 = $233.31
$1000 - $233.31 = $766.69
So the amount owed for the full lease term is 11,766.69 and the first month rent owed should be $766.69.
A few things to note - it is important to get the start and end date of your occupancy correct on your lease. If your lease states that it begins on the 1st of the month but you choose to really move-in a week later, well that was your choice, but you paid for that empty week. Same deal at the end of the lease term. As a landlord I sometimes get lucky when a tenant voluntarily moves out a few days early. No pro-ration of rate is owed if a tenant chooses to return the keys and vacate before the end of the lease. But if you know what your real move-in and move-out dates should be and they don't fall on the first and last days of a month - then you should negotiate this before you sign your lease and save yourself some money.
Hope this little tutorial helped. I am a small landlord and don't pretend to be an all-knowing expert - so if you have any comments let me know. Also, if you have any questions from a tenant or landlord point of view ask and I or other readers will try to answer. But most important of all - if someone you are transacting business with is using a word or phrase you don't understand, don't be afraid to ask them to clarify or explain! |
| posted by Boston Gal @ 12:27 PM *
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| 9 Comments: |
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I've heard of landlords who always prorate rent based on a 30-day month, even if you leave during a 31-day month. Why on earth would they do that??
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Man! Thanks for the rundown. I just changed something on my AT&T bill, and the woman said the change would be prorated, and I didn't worry about it. Now I can figure out the difference and make sure they charge me the right amount!
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Maybe he figured his lease would start on the day he took possession of the property, instead of the first of the month. This is how most leases work. Not a hard concept to get your mind around. Maybe you just like collecting on the 1st of the month, which is easy to get my mind around. :-)
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Hi Anonymous,
Remember, you are prorating for the lease year and figuring out the per day charge based on the full lease amount (a years rent in most cases if you are working off a 12 month fixed term lease). So the 30 day calculation makes perfect sense.
How many days in a year? 365 days divided by 12 months equals 30.42 days per year - rounding is a common business practice - so you round down to 30 days.
Maybe to make it clearer I should state that when you sign a one year lease you are generally signing a 365 day lease (plus or minus any prorated amount if you are really taking the lease plus or minus some days per the one year lease term).
Hi Allyson,
Yes, understanding what prorate means is useful in many ways!
Hi James,
Perhaps - but I was clear that I wanted the lease to end on end of month. If he had not been old enough to have been around the rental block a few times I would not have been surprised. But again, I should not assume these things - so my bad really.
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Good to know Boston Gal! I remember the first lease I signed for an apartment and the lease had in big bold numbers that I was signing up to owe the landlord $14,400! I had to have it explained to me that my $1,200 a month rent equals $14,400 for the one year lease I was signing.
I guess I had never really thought about just what it meant to be signing a fixed term lease until I saw the big dollar figure!
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I recall lots of odd things in leases from my days as a renter; one of the most interesting was in a State where they had a law against landlords charging a penalty for being late paying the rent. The lease said "X dollars a month, with a discount of Y dollars if paid before the first of the month," which of course came the same thing.
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Just a tip from one landlord to another, it is always better to get more money up front since even though you do your best to screen, someone could still have issues.
In instances like you describe, I require the full first month rent and security deposit and then prorate the second month.
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What sort of work did you to in the basement apartment? Just curious!
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As a landlord, I put EVERYTHING in writing. I doubt it would help in court, but it does help in day-to-day life. I've had to explain to renters many times that they may CHOOSE to leave in the middle of a month, but they are really renting until the end of a month.
I did once return a security deposit very early, just to get rid of a renter. Learned my lesson on that one.
Several renters later, I held onto a security deposit until the last day allowed by law because this renter was so nasty and overly demanding. She's now a home owner in my area and I laugh every time I think of her paying property taxes or the expenses she'll have when her ancient septic system dies. If she had communicated with me I would have let her in on the townie wisdom of NOT buying in her area, known for poor drainage and flooding. HA!
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I've heard of landlords who always prorate rent based on a 30-day month, even if you leave during a 31-day month. Why on earth would they do that??