Multifamily Rent Proration For unpaid tenants

11 Replies

How have others handled rent proration for tenants that have not paid at the time of closing. Example, if closing Jan 15th, and 5 tenants have not yet paid Jan rent and one or two have not paid part of Dec and Jan, how is that typically handled at closing? The contract is not detailed in regards to this.

Well first you need let the buyer know if you're the seller. Then you can agree to whatever you want. Typically, the seller would assign those rents to the buyer. So if the buyer collects Jan rent on Jan 20th they keep the whole thing. And the seller doesn't pro rate cause they don't have it. It's obviously not great for anyone but that's usually how it would shake out. But as a buyer I'm certainly not going to pay the seller back if I collect since I took on the risk and had to deal with collections and hassles straight away. I supposed you could try and get eh seller to pay them anyway and reimburse them if you do collect, but I don't see that working, I could never get anyone to go for it.

Originally posted by @Matt Hoyt :

Well first you need let the buyer know if you're the seller. Then you can agree to whatever you want. Typically, the seller would assign those rents to the buyer. So if the buyer collects Jan rent on Jan 20th they keep the whole thing. And the seller doesn't pro rate cause they don't have it. It's obviously not great for anyone but that's usually how it would shake out. But as a buyer I'm certainly not going to pay the seller back if I collect since I took on the risk and had to deal with collections and hassles straight away. I supposed you could try and get eh seller to pay them anyway and reimburse them if you do collect, but I don't see that working, I could never get anyone to go for it.

 In my situation my seller wants me to take the first half the month unpaid rent out of my pro-ration, basically assuming that I will collect it. Same with unpaid utilities from the RUBS setup. The contract essentially just says rent will be pro-rated and is just not clear. With a large property this ends up being around $8k out of rent pro-ration for items that have not been paid yet.

Okay so I'm clear there is approx 16k in uncollected rent for Jan. And using Jan 15th closing as an example you should have been credited 8k if he collected. And since he didn't he wants you to credit him the 8k of 1/-1/15 assuming you'll get the 16k later? He's dreaming, tell him to shove off. You honestly won't likely collect any of that and if you do you've earned the entire thing. Tell him he's lucky you're still closing with a bunch of tenants that need to go right out of the gate.

Originally posted by @Matt Hoyt :

Okay so I'm clear there is approx 16k in uncollected rent for Jan. And using Jan 15th closing as an example you should have been credited 8k if he collected. And since he didn't he wants you to credit him the 8k of 1/-1/15 assuming you'll get the 16k later? He's dreaming, tell him to shove off. You honestly won't likely collect any of that and if you do you've earned the entire thing. Tell him he's lucky you're still closing with a bunch of tenants that need to go right out of the gate.

There is approx $11k past due actually, about $8k rent and $3k RUBS(which the utilities aren't billed on a calendar basis so they may not be extremely delinquent). So he's wanting the $3k RUBS and roughly half the rent.


I do believe most of the tenants will pay, they may be slow payers but they have been there 6+ months and this seller likely isn't the type to let them get extremely delinquent. There are 2 of the 13 that are behind. They are all also behind varying degrees. It's not that simply haven't paid January, but that they paid half, or they paid 1/3, etc.

Originally posted by @Matt Hoyt :

Okay so I'm clear there is approx 16k in uncollected rent for Jan. And using Jan 15th closing as an example you should have been credited 8k if he collected. And since he didn't he wants you to credit him the 8k of 1/-1/15 assuming you'll get the 16k later? He's dreaming, tell him to shove off. You honestly won't likely collect any of that and if you do you've earned the entire thing. Tell him he's lucky you're still closing with a bunch of tenants that need to go right out of the gate.

 Also, this $8k in rent delinquency is out of the $50k or so in gross rents, so about 16% of the months rent.

Okay, bigger building, so I'll rescind my comment about him giving you a bunch of problem tenants because that's a potentially normal amount.

BUT, I still wouldn't be paying him that rent. Sure you'll collect it but it'll be late. And as we all know they continue to be late and you'll likely lose at least a month on most of them. On average people don't catch up. And there's no reason to pay him for that.

Thanks for the thoughts, we'll see how it goes. In the future I will definitely make it more clear up front.

 Great question. We recently went through exactly that scenario on a small building. A couple of the tenants were behind and we closed on the 10th with some late rents due. The seller wanted to keep 1/3 of the gross months rental receipts as if they had already been collected. I told him to go pound sand and they returned to the table and we agreed to and equitable settlement. We kept all collected rents for the month (not prorated) and assumed the risk for the late/ slow pay ones. 

The answer is there is no clear answer, but what you can work out. I would get the credit for the collection to date and then take 100% of what you collect on delinquent rent. My biggest concern, however, would be why don't they have the rent and are you acquiring a problem?

@Chase Gochnauer Typically, you want to time your closing closer to the 2nd or 3rd of the month because that way you get most of the rents for that month.

Now, in this scenario in which some tenants haven't paid on 15th? And you want to start preparing for 2 evictions, as I'm not sure if the prorated rents are the major issue right now, unfortunately. Sometimes, its ok to take the financial hit in the front end than jumping into tenant drama. 

Hope this helps. Goodluck. Thanks! - Ola

@Chase Gochnauer it is pretty clear, rents are prorated so if the total rents are $10,000 and you have it half the month, you get $5000 at closing. You don't subtract un-collected rents. Rents HE didn't collect by the way, so his negligence.

You are probably facing multiple evictions, so there is no way I would agree to paying him a penny for any tenant in default. You could agree to prorate all paid rents and unpaid, you both just take the hit. If you collect money, just agree to send his portion to him.

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