A recent case heard in the Court of Appeal has highlighted the
potential problems faced by landlords when they agree to accept
several months of rental payment in advance. Thankfully, the final
judgement from the above case found in the landlord’s favour, which
should help to clarify that advance rental payments cannot (in most
cases) be treated as a deposit.
Why accept advance rent payments?
Asking for several months rent to be paid in advance is wise for any
number of reasons. Most of the time landlords do this because a
tenant has failed their credit check or is a bad risk for some other
reason. By insisting on at least 6 months rent in advance, the
landlord can hopefully avoid being left out of pocket if the tenant
defaults on their payments.
The difference between advance rent and a deposit
The issue of whether rent paid in advance can be classed a deposit is
an important one. As all landlords know, deposits must be placed in a
deposit protection scheme whereas rent payments are placed into a
rent account as opposed to being held as security. This was one of
the grounds for appeal in the case of Johnson vs. Old: the tenant
claimed the landlord had not protected the sum of money paid in
advance by placing it in a secure deposit scheme.
How can issues like this be avoided?
Drafting a clear and transparent tenancy agreement is the best way to
avoid potential problems regarding financial issues. Make sure your
tenancy agreements are worded clearly and that your tenants
understand them before they sign on the dotted line.
