Choose Most Lucrative Method of Calculating Prorated Rent

If a prospective tenant asks to rent space in your center beginning on a day past the first of the month, you should prorate the rent for the remainder of the month. Spell this out in the lease carefully. Otherwise, you and the tenant could end up in a dispute over which calculation method to use. That’s because there are several methods to calculate prorated rent, and each one gives a different result. It’s important to carve out the right to use the method you want, since the method you choose will affect how much rent the tenant pays you. There are three possible methods to choose from. You can prorate annual rent on a 360-day basis, assuming that each month has only 30 days. Or you can prorate annual rent on a 365-day basis. Or you can prorate monthly rent based on the actual number of days in the month. Each method will give you a per-diem rent. Then you’d multiply that number by the remaining days in the partial month to determine the rent the tenant owes.

From the owner’s perspective, the best method is the 360-day basis. That’s because it’ll yield the most money for the owner. Here’s how this method works: Suppose a tenant pays an annual rent of $1.2 million for its space. That’s $100,000 per month. The lease starts on Oct. 2, 2011. So the tenant would owe rent for only 30 of the 31 days in that month. If the annual rent is prorated using 360 days in a year, then the tenant would pay you a per-diem rent of $3,333.33 ($1.2 million divided by 360). Multiplying that amount by 30 (the number of days remaining in October 2011) equals $99,999.90. In this example, the other methods would cost you, at least, $1,369.80 and, at most, $3,225.60 in profits.