# Prepaying Rent (Hoping my landlord is not good at math)



## Max (Apr 4, 2009)

My landlord is a condo owner who is privately subleasing the apartment. I have recently made a proposal to my landlord to repay my rent for the next 5 months (through the end of the year). Rent is $1,300 per month. In return I am asking for a discount of $300.

To the landlord, this eliminates all of his risk and he does not have to go through the hassle of collecting rent each month.

My benefit: $300 is only 4.5% absolute return on the $6,500 (5 months x $1,300), but when factoring in the time period involved, the $300 discount represents an annual return of approx 27.5% on the prepaid funds.

Month 1 - rent paid 0 days early
Month 2 - rent paid 30 days early
Month 3 - rent paid 60 days early
Month 4 - rent paid 90 days early
Month 5 - rent paid 120 days early

On average, I am paying $6,500 rent only 60 days early and getting an absolute 4.5% return, which when annualized is roughly 27.5%.

Better and safer return than stocks by far, and tax free. If only the landlord will go for it.

What I am wondering is what is my legal protection with regards to prepaid rent (living in Alberta). There is nothing in the lease regarding this arrangement and if my landlord decides for whatever reason to terminate the less early am I legally entitled to a refund of prepaid rent bylaw or should I ask to add a provision to the lease.


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## balexis (Apr 4, 2009)

For 300$ I wouldn't risk it. If something happens, like the lease is terminated early, the landlord has your money and you might have to force him to reimburse, most likely through legal means. This costs money, add up stress and lost time, it does not seem to be worth it.

However if you really trust the landlord and know he has integrity, you might want to go for it and have fun with that 300$


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## GeniusBoy27 (Jun 11, 2010)

I don't think I'd ever do that either, to be honest unless you have a signed leased agreement to that effect. If you do, you have legal protection, so that shouldn't be an issue.


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## Addy (Mar 12, 2010)

I also would not risk this for such a small amount as $300.


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## Max (Apr 4, 2009)

OK, point taken, but can anyone clarify if I am legally entitled to a refund of prepaid rent if the arrangement is not documented in the lease?


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## GeniusBoy27 (Jun 11, 2010)

My guess would be if you have proof of payment (i.e. a receipt to that effect) or a cancelled cheque, the answer would be yes.

However, it would be FAR more preferrable to get it in writing.


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## Dana (Nov 17, 2009)

Do you have a lease or do you rent month to month? If you are currently renting month to month, you could draw up a lease to cover this time period which specifies this unique payment arrangement as well as the fact that the LL has to reimburse you if the tenancy ends before the term of the lease at the instigation of the landlord. 

Just a thought...


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## OhGreatGuru (May 24, 2009)

I don't see sufficient incentive for your landlord to take a $300 discount in your 5-months rent. I'm also pretty sure there is something screwy about your calculations for a fictional ROI, but can't quite put my finger on it.


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## andrewf (Mar 1, 2010)

I did the math and it yields an IRR of ~33.235% per annum.

I used the following cash flows:

Period 1: -6500+300+1300=-4900
Period 2: 1300
Period 3: 1300
Period 4: 1300
Period 5: 1300

That's a steep discount. I doubt I would go for it as a landlord. A good discount already would be 100$, yielding 10% annualized.


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## Max (Apr 4, 2009)

I'm not quite sure the averaging of the returns over separate time periods is an accurate representation, I agree the calculation may be a little off in the aggregate. Best to look at each early payment as a separate investment.

Regardless of whether or not it is worth it for myself or for the landlord, the spirit of the question is what is my legal recourse for a prepaid rent arrangement made outside of the lease contract if the landlord decides to terminate the lease early.

I agree it would be best to include this arrangement in the lease, but lets assume there is a good reason not to.


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## GeniusBoy27 (Jun 11, 2010)

Your legal recourse is based on what you have in your lease, and what the law provides in Alberta. I simply don't know what the law is in Alberta.

In Ontario, you landlord has to give you written notice prior to kicking you out. I think the number is 60 days. If he/she attempts to do it, you have the right to go to the landlord/tenant board and prevent that. So, whatever period isn't covered needs to be returned as per the lease. Otherwise, you have the right to sue, as per the lease.

Having this formalized protects you clearly. Not having it formalized, means that in the case of dispute, it would return to the original lease that you signed, and you may lose that $300 bonus you sought after.

I'm by no means a legal expert, but having dealt with contracts before, everything reverts to what is signed. Verbal agreements have no weight in a court of law.

Your landlord is obligated to return to you what is the difference between what you paid - the signed agreement on the lease.

For example if he terminates at 3 months ... and you paid $6200 for the 5 months, and the obligation for the 3 months was for $1300/month = $3900. He would be obligated to return you $2300, and no more.


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## andrewf (Mar 1, 2010)

Do you really think the landlord would try anything? It would hardly be worth it to him to lose a paying tenant over some dubious scheme to bilk you out of prepaid rent. Just ask for a clear receipt for the prepaid rent.


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## GeniusBoy27 (Jun 11, 2010)

But he's paid the landlord already. The only scenario we're talking about is if the landlord decides to pull out for some unbeknowingst reason.

My point and the question that was asked is what we happen in this scenario. The answer is that the signed leased is still the agreed upon rent. A verbal agreement is not binding.


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## Max (Apr 4, 2009)

Based on consensus here (under the caveat that no one offering advice is a legal expert), I think I would be entitled to my money back. Good point GeniusBoy, that I would lose the discount in the event of early termination, since it would revert to the lease. Makes sense.

How about if I get a detailed rent receipt:
Receipt for Rent owing from Month 1 - Month 5 of $6,500
Minus: Early Payment Discount of $300
Net amount received $6,200

Then I would clearly be owed a refund of the balance of the full $6,500 upon early termination, no?

With the balance of the lease term (7 months) rent still pending, I think it would be unlikely that the landlord would cheat a paying tenant. I would be well advised not to extend the early payment period more than 6 months. 

Based on the horror stories I hear in the real estate section of this site, the landlord should be overjoyed to find a tenant who pays on time and has the financial stability to prepay rent. However, the point is taken that any arrangement for prepaid rent will expose me to that risk (regardless of whether it is in the lease or not).

So to summarize:
1) Financially, this is not a good deal for the landlord (in terms of ROI)
2) Financially, this is a very good deal for me (in terms of ROI)
3) This arrangement transfers the risk from the landlord to the tenant, and I must keep in mind this additional risk when calculating my ROI.
4) While legally I am probably protected from losing all of my prepaid rent in the event of early termination, it will be a hassle if I have to take the landlord to court and I do not have proper documentation of this agreement.

It all comes down to how badly the landlord wants to eliminate payment risk and whether I am getting a high enough return in exchange for accepting the risk of a deadbeat landlord who I would have to take to court to get my money back.


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## andrewf (Mar 1, 2010)

I think the risk is very low. The potential harm you could do to the landlord if things turn nasty is higher than what he could do to you. You could fail to obey eviction proceedings, and stay all winter. You could trash the place before you leave. Pissing off a tenant doesn't sound like good business to me. They can really hurt you...


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## GeniusBoy27 (Jun 11, 2010)

I agree with Andrew's statement.


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## Max (Apr 4, 2009)

So..... you like the idea?

Maye $300 is too much of a discount, but I am sure I can negotiate a good deal with the landlord that will still earn me far more than I can expect to earn from investment in stocks and it will be tax free and with far less risk (especially if built into the lease agreement).

Will the landlord go for it?
-No risk since cash up front and proves I am financially stable tenant (fear)
-No hassle from collections (laziness)
-May solve short term cash flow issues if landlord has other properties needing renovations prior to leasing. (stress)
-Joy of receiving a huge cheque all at once (greed)
-Discount may seem like less than it actually is (ignorance)

Any others to include in my sales pitch to the landlord?


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## Berubeland (Sep 6, 2009)

In Ontario it is illegal for a landlord to have prepaid rent. It is disgusting when they demand it of new immigrants then make them sign a letter to the effect that they are doing the new immigrant a favour by allowing them to prepay rent in exchange for lack of canadian tenancy status. 

This is what I worry about, maybe because I know how the law works. You pay the landlord and the landlord prepays the mortgage or goes on vacation with your money. The place catches fire. You are out your money, the landlord doesn't have the money to pay you back. You go to court, wait a couple months explain this whole bloody mess in front of an adjudicator who gives you a judgement. 

In Ontario you then have to take that judgement to Small Claim where it takes a year to get a date for mediation and another six months to get a hearing. 

The law is not protection for you ever. For instance is someone comes along with a chainsaw and chops you into little pieces, the fact that he will get charged and sent to jail is no comfort. Far better to avoid crazy people and the courts IMHO. 

Forget the discount and pay your rent every month, that's my advice.


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## GeniusBoy27 (Jun 11, 2010)

To be honest, for that amount of benefit ... I wouldn't worry about it. But if you're comfortable with the risk, and your landlord agrees, go for it.


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## chaudi (Sep 10, 2009)

What if your apartment burns down or there is flood and you have to move out in the middle of the night?

This is happen to at least two people i know and they didn't even get one penny back from the LL for lost rent or lost possessions. That's in Awtario.

btw, in awtario this would not be legal at all. If a LL forces you to pay in advance you can take him to LLTB and he will have to return the money plus interest. If you want cheaper rent try the awtario automated tenant rent control system - just don't pay and wait 60 days for an eviction notice!


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## m3s (Apr 3, 2010)

chaudi said:


> If you want cheaper rent try the awtario automated tenant rent control system - just don't pay and wait 60 days for an eviction notice!


So true. I'm sure it takes another 60 days before the cops actually force them out too


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