Updated for 2018
Rent paid in advance is unlikely to be considered a deposit, and therefore does not need to be protected, according to a new ruling from the Court of Appeal.
Last week the Court ruled in favour of the landlord in the ongoing case of Johnson vs Old. The case has been closely watched by landlords and agents thanks to its implications for the many landlords who ask for several months' rent in advance.
The case concerned a tenant, Ms Old, who, as a result of her inability to meet the landlord's credit and income referencing requirements, was asked to pay six months' rent in advance for a six month tenancy. The tenancy continued for three terms, and then became a periodic tenancy. Shortly afterwards the landlord served a section 21 notice in order to regain possession.
The tenant, however, insisted that the payments of six months' rent should be treated as deposits that had not been protected, and that the section 21 was therefore invalid and she was entitled to compensation. A County Court judge upheld the tenant's claim, but this ruling has now been overturned at the Court of Appeal.
The Court of Appeal's ruling upheld the landlord's right to ask for six months' rent in advance, although the case was complicated significantly by the fact that the tenancy agreement was seemingly very poorly drafted.
The Court posed the question of how the tenant would have reacted had they been asked to pay rent for one of the months covered by the six months that had already been paid. The Judge responded: "It is, I think, impossible to avoid the conclusion that her answer would have been: 'Why are you asking me for rent which I have already paid?'"
The final part of the case focused on the question of whether or not the money had been properly protected - but, as the Court had already found that the money did not constitute a deposit, this was ultimately deemed irrelevant.
Johnson vs Old has three main implications that landlords should consider.
It is vital that tenancy agreements are well drafted. Johnson vs Old was complicated by a poorly drafted document. Had the tenancy been better written, it is likely that the case would never have got this far.
Landlords are free to ask for several months' rent in advance, and this is a reasonable response in circumstances in which a tenant cannot pass credit referencing requirements.
Rent paid in advance is unlikely to be treated as a deposit, and it is therefore unlikely that it will need to be protected.
However, it is important to understand that Johnson vs Old does not provide a definitive, catch-all judgement. If you are in any doubt you should seek legal advice.
The tenant fees ban, due to come into force in 2019, will have further implications on the treatment of deposits, and introduces new limits to the amounts that landlords can take.
Read more about the ban on letting fees.
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