How rent is pro-rated for partial periods

If rent is applied for a partial month period, e.g. at the start of tenancy in order to align with the normal rent due date, or due to a tenancy ending early, then the system will automatically work out the pro-rated rent amounts for these periods and the rent balance will be updated accordingly. 

The formula for "daily rate" calculation

When rent is being pro-rated, a daily rate is used to calculate the total rent due. Be careful if doing this calculation manually, as rounding of rent values must be done at the correct stage to ensure that the overall rent is correct.

Partial rent values are calculated by multiplying the total monthly rent by 12 to get the annualised rental value, and then dividing this by 365. This calculation is not adjusted for leap years; it still uses 365 days.

The formula used is: 

(Total monthly rent * 12) / 365 * (number of days in the partial month)

If the daily rate is not rounded after dividing by 365, then rounding errors can occur later - see the example below for illustration. 

An example of pro-rated rent calculation

Consider a monthly tenancy which starts on 20th May and runs to 19th May the following year, and the agency configuration is set to apply rent on the first calendar day of each month. The rent is £1000 per month. 

The initial "lead-in period" will calculate rent from 20th to 31st May. Rent will be applied as normal (the full amount per month) from June through April, and the "lead-out period" at the end will have rent calculated from 1st to 19th May.

The lead-in period from 20th to 31st May is 12 days (inclusive). The daily rate works out at 1000 * 12 / 365 = £32.88. The rent for this period is 32.88 * 12 = £394.56. 

The lead-out period from 1st to 19th May is 19 days (inclusive). The daily rate is the same as in the first calculation above, resulting in a rent for this period of 32.88 * 19 = £624.72. 

Be aware that the total rent applied over a full tenancy may be slightly more or less than expected if the first and last partial periods are pro-rated.

Considering that the full £1000 is charged from June through April, the total rent charged for the full tenancy is £394.56 + (£1000 * 11) + £624.72 = £12,019.28 and not the round £12,000 figure you might normally expect. 

Also, consider that if the daily rate is not rounded before multiplying by the number of days then the lead-in period would be calculated as 1000 * 12 / 365 * 12 = £394.52 and the lead-out period as 1000 * 12 / 365 * £624.66. This would give a total rent for the tenancy of £12,019.18. That may only be a difference of 10p, but your accountant may view this as significant. In some examples, depending on the degree of rounding involved, this can be out by even more. 

This might seem like undue complexity and unnecessary maths but it often leads to confusion and you'll need to be able to explain the pro-rated rent calculations to both the tenant and the landlord if they ask.