When a tenancy agreement is signed, in some states there is an option for rent to be payable monthly, but what exactly IS a calendar month, and how should rent be calculated?
A calendar month is equal to the number of days from a specific date of one month, to the same date of the next month, and thus can be 28, 30, or 31 days – or even 29 in a leap year.
Example of the differences in days:
- 21 January to 20 February 2018 – 31 days
- 21 February to 20 March 2018 – 28 days
People are often confused about the calculation of monthly rent payments; this is because it is not as straightforward as might be the first thought. Agents and landlords may use any number of different methods to calculate rent, as there is a formula set in the legislation.
Case study example:
A tenant signs a 6-month agreement to pay $2000 per month starting on the 15th of January 2018. Being a monthly rent figure, they have not agreed to pay rent according to a weekly rent, or any other daily amount. The rent amount is a single monthly figure, regardless of how many days in each month:
- Rent due from 15 January to 14 March 2018, is 59 days
- Rent due from 15 January to 13 March 2018, is 58 days
If a tenant signed an agreement starting on 15 January, then in example 1 above, the tenant should owe $3879.45 based on the conventional daily rate calculation (monthly rent x 12 months / 365 days) – HOWEVER
The tenant has signed an agreement based on a flat monthly rent amount, so they actually owe $4000 because the dates equate to 2 full calendar months.
In the second example above, based on the conventional daily rate calculation (monthly rent x 12 months / 365 days), The tenant owes $3813.70. By this calculation – for the single extra day, the daily rate for that last day would end up being $186.30 to make up the difference, instead of the conventional daily amount of $65.75 we used in the first place!
Is the conventional daily rate really the best way to accurately calculate monthly rent?
The daily rent calculations method (monthly rent x 12 months / 365 days) is very inconsistent for monthly rent and varies through the different months of the year. The months have different total numbers of days, and with any lease term less than a full calendar year, either the landlord or tenant will be out of pocket due to this inconsistency.
Example of a lease change within a 12 month period:
- Inaugural lease from 15 January to 14 July 2018 – 181 days
- New tenant’s lease from 15 July to 14 January 2019 – 184 days
And yet – under the flat monthly calculation of $2000 per month, each tenant would be paying $12,000 in rent with the first tenant paying the same amount as the second for 3 fewer days!
For a more accurate calculation, the rent should be calculated individually for the month, to get the correct daily figure for this specific month.
How does Console Cloud calculate monthly rent?
Console Cloud calculates the accurate daily rent amount for a specific month, by taking the total rent due in a month and dividing it by the number of days in the month. You can then multiply the daily rent amount by the number of days the tenant will be occupying the property during that month. This calculation can be easily used to calculate pro-rata rent amounts when a full month is not applicable.
Remember this monthly calculation method for pro-rata:
- Take the number of days in the calendar month
- Divide monthly figure by the number of days
- Multiply by how many days rent are being charged
This way, all is fair for both the landlord and tenant – no-one is out of pocket!