Rent paid in advance will not count as a deposit it was decided by the Court of Appeal this week. The ruling means that landlords and letting agents are not obliged to treat rent paid in advance as a deposit which requires protection under the Housing Act of 2004.
The decision was based around the long-running case of Johnson v Old, where the tenant was offered a 6 month tenancy and was asked for 6 months’ rent in advance as due to her circumstances she was unable to fulfil the criteria required for satisfactory references.
The tenancy agreement in the case proved confusing because it stated the rent should be paid monthly in advance, but also said that the rent should be paid six months in advance.
The tenancy was renewed on a couple of occasions under the same terms with the tenant paying 6 months rent in advance each time, before entering into a month by month periodic tenancy where the rent was paid monthly in advance. When the landlord tried to serve a Section 21 notice to gain possession of the property, the tenant responded that a Section 21 could not be served because she had paid rent in advance, which should have been treated as a deposit and protected.
The tenant’s argument was successful at the first hearing, but was then challenged successfully by the landlord at the second hearing. The tenant launched an appeal and the case then went to the Court of Appeal, which ruled in favour of the landlord.
In response to the outcome, Steve Harriott, Chief Executive of the Tenancy Deposit Scheme, stated: “This is a very helpful clarification of an issue which has been concerning landlords and agents. The judgement in this Court of Appeal case should assist those landlords and agents who want to ask for rent in advance and who can be reassured that this is not a tenancy deposit that needs protecting under the Housing Act 2004.”
Westpine Property Lettings and Management welcomes the verdict and the clarification between rental payment and deposit. Our opinion on this ruling is that advanced payments are usually requested when the tenant’s criteria do not fulfil all of the referencing checks. The landlord has the option whether to accept the tenant and make the offer of advanced rental payment in order to offset the risk involved in renting out the property to someone who has not satisfied all of the checks.
Where this agreement has been accepted by both parties, the payment would be seen as a rental payment that should be passed onto the landlord, as it is not monies which the tenant would be entitled to receive back at the end of the tenancy. In addition there would have been a deposit taken to cover against damage to the property and this would be the sum which would need to be paid into a deposit scheme and protected as required by legislation.
Had the ruling found in favour of the tenant, the tenancy landscape would have been dramatically altered. Westpine is of the opinion that this would have had a negative impact on potential tenants. Landlords would be unwilling to rent their property to tenants who did not fully satisfy referencing, if they could not receive any of the rental payment until the tenancy payment period had elapsed.
Westpine strongly advise all Landlords to ensure that their tenancy agreement does not have contradicting terms and is clear to all parties. Conflicting terms can make it difficult for the contract to be upheld should any matters end up in the courts. Westpine use a clear tenancy agreement and should any exceptional circumstances apply, these are added as clauses with any previous contradictory clauses removed. Our tenancy agreement is used on behalf of all landlords who use our Let Only, Rent Collection or Full Management service.
Westpine fully support the need for protection of tenancy deposits and these are held in our DPS (Deposit Protection Service) on behalf of our Rent Collection and Full Management landlords. We are happy to advise our Let Only landlords on how to set up their own DPS account to register the tenant’s deposit.
Westpine also recognise the need to protect landlord rental payments and being Safe Agent registered, all monies are received into our separate client bank account before being transferred directly into the Landlord’s nominated bank account.
Westpine can be contacted on 01204 694121, email@example.com, 87 Winter Hey Lane, Horwich, Bolton, BL6 7PA and further information on our practices can be found on our website www.westpinelettings.com