Property Management Blog

Determining Proration Amounts

David Swaim - Saturday, May 26, 2018

One of the things your Phoenix property management has to deal with after a tenant moves out is the security deposit. Some of the charges are clear like an uncut lawn or a stove with missing drip pans. Other problems require more work. For these charges, our property management team uses a technique known as proration.

Proration looks at the amount of time that elapsed as a ratio of a fixed amount of time. For example, consider a car insurance policy. It lasts six months, but is canceled after just four months. The prorated amount is 67 percent. The insurer keeps the 67 percent, and the policyholder gets 33 percent.

For a Phoenix rental property, the pro rata is lost life. This is the idea that an item has an expected life span, and the tenant caused part of that lifespan to disappear. Tenants may be fully responsible for broken items like a window, but the loss of life concept applies to things like paint or flooring. If a new carpet has stains that are impossible to clean, then your property manager uses proration to determine how much of the cost should be covered by the tenant. If a wall has to be repainted, we can paint a wall and if the entire home needs a paint job after the tenant moves out, then we prorate the cost.

Let's look at an example. A tenant destroyed the carpeting in their home. The carpeting company said that the carpet had to be replaced for $1,400, and we know that the flooring should have lasted 7 years. This means the cost per year is $200. After a little detective work, we find that the carpeting was originally installed when the house was built in 2014. The carpeting is 4 years old, so it has lost 3 years of life. Using the proration equation, we multiply the number of years we missed out on (3) by the cost per year ($200). Thus, the tenant owes $600.

To prorate damages, we must be able to prove the time of purchase with a receipt. We follow the guidelines of our attorney, who is also a sitting judge. He tells us what the courts consider reasonable so that our landlords will win if they have to defend the prorated charges in court.

None of us want to have to go to court to defend a deduction from a security deposit. If there is a set policy that is regularly applied and backed up by proof, it can make all the difference.