Question 1

What is the Kentucky Rule in real estate law?

Accepted Answer

The Kentucky Rule is a property law doctrine addressing the allocation of expenses and income when property ownership changes hands. Under the Kentucky Rule (as applied in Florida and many other states), the seller is entitled to all income earned before the closing date and is responsible for all expenses incurred before closing. The buyer is entitled to all income earned from the closing date forward and is responsible for expenses from closing forward. Common items prorated at closing using this approach: property taxes (prorated based on the closing date), HOA assessments (current period prorated), rent (if the property is tenant-occupied), insurance premiums, and utility costs.

Question 2

How does the Kentucky Rule apply to Florida real estate closings?

Accepted Answer

At a Florida closing, the Kentucky Rule governs prorations: property taxes are prorated as of the closing date (the seller is responsible for taxes through the day before closing; the buyer is responsible from closing forward). Since Florida property taxes are paid in arrears, the seller typically receives a credit for taxes already paid or the buyer receives a credit for unpaid taxes. Rent is prorated: the seller receives rent through the day before closing; the buyer receives rent from closing forward. HOA assessments are prorated based on the assessment period. Insurance premiums are generally not prorated (the buyer obtains a new policy). These prorations appear on the closing disclosure (HUD-1 or ALTA settlement statement).

Question 3

Are there alternatives to the Kentucky Rule for prorations?

Accepted Answer

Yes. Some jurisdictions or contracts use alternative approaches: the Massachusetts Rule (a calendar-year approach where taxes are prorated based on the fiscal year), the New York Rule (similar to Kentucky but with different treatment of prepaid items), or custom proration agreements (the purchase contract specifies the exact proration methodology). In Florida, the standard real estate contract (FAR/BAR) uses the Kentucky Rule approach by default, but the parties can agree to different proration terms. The closing agent calculates prorations based on the contract terms and presents them on the settlement statement for both parties’ approval.

Kentucky Rule

Kentucky Rule in Florida Real Estate

The Rule

Common Prorations at Florida Closing

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