What Is Pro Rata? Breaking Down the Time-Honored Legal Term The Latin phrase pro rata (often written “prorated” in modern English) is a term used in legal agreements to signify an “in proportion” or “in the same ratio” arrangement. The principle of pro rata is frequently applied to agreements for the rental or lease of a property, as well as to agreements related to business partnerships. Pro Rata in Leases and Rentals When it comes to leasing a property, the agreement may set forth a pro rata clause. This means that both the tenant and the property owner agree that the tenant will pay the rent in proportion to the time spent living in the property. Essentially, a pro rata rental arrangement dictates that if the tenant occupies the property for only part of a month or quarter, they will pay a percentage of the fee proportionate to the amount of time occupied. Pro Rata in Business and Finance Transactions The term pro rata is also commonly used in business and finance transactions. When goods or shares of a company are split among a number of owners, it is referred to as a pro rata division. In this type of syndicate partnership, each partner’s share (both its advantages and disadvantages) is divided proportionally according to the amount of money each partner has invested. This is seen in a variety of contexts, from startup companies raising money from multiple investors to asset buyouts in which multiple parties collectively pay for the purchase. Another application of pro rata in finance is with loan agreements. Many loan agreements contain a provision in which the lender has the right to demand pro rata repayment when the loan is terminated. This means that the balance of the loan is payable immediately and in accordance to a pre-arranged ratio, rather than the entire balance at once. The Bottom Line The term pro rata is an important one to be aware of when entering into a lease, business or finance agreement. Knowing that the parties involved may have agreed to a pro rata clause means understanding that payment of goods and services are shared and proportional according to the terms of the agreement.