First and last month advance rent instead of a Deposit?

by Readers Question

9:56 AM, 10th September 2013
About 5 years ago

First and last month advance rent instead of a Deposit?

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First and last month advance rent instead of a Deposit?

I was talking to a friend of mine at the weekend who has one property she lets out and I asked which deposit scheme she uses.

She said she doesn’t take deposits, claiming it’s not necessary if you apply the “first and last month rent up front” method. First and last month advance rent instead of a Deposit

Although I’ve worked in the lettings industry I’ve never heard of this before – is she walking a dangerous line if she ever wanted to issue a S21 if she’s never provided any Prescribed Information, which she won’t have if she doesn’t consider it to be a deposit, or risking a punitive fine if she has a savvy tenant?

If it is acceptable, when could a S8 be used if the last month is paid in advance? If the AST goes periodic how is the last month determined?

Alternatively, is this an old practice which is now no longer acceptable and she urgently needs to be updated?

I look forward to reading your thoughts

Regards

Tilly Mint



Comments

Mark Alexander

10:05 AM, 10th September 2013
About 5 years ago

Hi Tilly

I have come across people talking about this before but it came across to me as a blatant attempt to circumvent tenancy deposit protection legislation. The theory, as it was explained to me, seemed plausible but complicated and was highly dependent upon very careful wording of a tenancy agreement which, at that time, had not been tested in Court. I don't know whether it has been tested in court since as it was about a year or so I came across this.

The reason I didn't look into it any further at the time was that I was happy with Deposit Protection rules. Post Superstrike I'm not so happy and feel far more vulnerable that I previously did! My other fear was that if it was complicated and not entirely logical my tenants wouldn't understand it either and that could cause issues when finding new tenants and also when they realise they have no deposit protection despite, in their minds, having paid a deposit.

The other point of course is that your friend will never be able to use the money to pay for damage as it's sole stated purpose is to pay the last months rent. Is she just taking a commercial view on damages on the basis that she would make a claim in the small claims courts if necessary?

If others have come across this and decided to use it then this could make for an interesting discussion.
.

Jay James

10:41 AM, 10th September 2013
About 5 years ago

Reply to the comment left by "Mark Alexander" at "10/09/2013 - 10:05":

Paragraph two.
Superstrike?
Is this a court case that highlights some problems with the mandatory deposit schemes?

David Sweeney

13:36 PM, 10th September 2013
About 5 years ago

It s only considered 'rent in advance' if it relates to a specific time period, so if a tenancy commenced on 1/1/14 with £1000 rent in advance for the first month AND £1000 specifically for 1/12/14-31/12/14 then that is fine. A landlord can not claim that 'the last month' is a specific period of time because at the time the deposit is taken, 'the last month' could be 6 months or 6 years away.

If it is not for a specific period then http://nearlylegal.co.uk/blog/2009/02/its-not-a-deposit-honest/ (lower court) shows the courts thinking, and TBH, section 212 is pretty clear that anything other than above is a deposit.

I can not see the advantage anyway. If the 'deposit' is limited to rent then what does the landlord do about damages? If £1000 is taken as in the above example, the rent may have increased to £1400 six years later - so the landlord loses out by £400.

Kirsty McGregor

9:51 AM, 11th September 2013
About 5 years ago

Yes that would be my concern too Dave - what about damages? You could end up having/trying to evict them one month prior to the end of the contract - assuming you get in to check the condition of the property in sufficient time too. A risky approach I think

Roger Lancaster

9:43 AM, 12th September 2013
About 5 years ago

Hi Mark. I agree with you. This is a very dodgy arrangement and I for one would not be confident in taking out a Section 21 particularly against a savvy tenant. With Superstrike in play I have never been more grateful that we decided long ago that the Tenant Deposit Scheme was a mine field for the landlord and not worth the effort. We no longer take deposits but instead insist on an employed home owning guarantor with equity before taking on a tenant which then means that we can pursue the guarantor through the courts for loss of rent and damage. The mere threat has be enough to bring tenants into line and generally establish a good long term relationship with them as they know the boundaries and the ground rules. Wherever possible we advise our landlords to go down the same route even with LHA. In most cases a good LHA tenant can either get a guarantor or a bond. If not we don't touch them the risk is too great. The lady in question would be well advised to start registering the deposits or go down the guarantor route.

Adam Alexander

10:39 AM, 12th September 2013
About 5 years ago

Reply to the comment left by "Roger Lancaster" at "12/09/2013 - 09:43":

Or both, which is what we recommend. See our guide to finding the perfect tenant in the link below 😉

http://lettingagentsonline.co.uk/free-guide-to-finding-perfect-tenants/

Barbara Thorning

17:26 PM, 12th September 2013
About 5 years ago

Many thanks to those who took the trouble to share their knowledge; one of main the things I like about this site is reading how generous people are with sharing information.

I was kinda hoping to be told this was an outdated practice that is now illegal and then she would have had to change her strategy. I am seeing her this evening and will pass on what has been said here, then it is up to her. I've also printed off the article provided by Dave Reaney.

I will let you know what her response is.

Jan Martin

18:03 PM, 12th September 2013
About 5 years ago

Reply to the comment left by "Roger Lancaster" at "12/09/2013 - 09:43":

Roger I used to do the same as you. Take no deposits and get a good referenced guarantor with own property and good job. But I found when it comes to using this guarantor and getting money from them its not so easy. Sometimes the guarantors circumstances change . Loss of job etc. Sometimes they have fallen out with whoever they have acted guarantor for and dont want to pay up . You can well find that you could end up having to give them a judgement and being paid £30 .00 month if your lucky. Its not easy getting them to pay as many folk dont care the same anymore if they have a judgement against them.You say "the mere threat brings them into line". Well not here in Wales it doesnt. I have always had excellent relationships with my tenants but if they get themselves into trouble and end up owing me the friendship seems to vanish . I have tried it but now I take deposts .

Roger Lancaster

10:42 AM, 14th September 2013
About 5 years ago

Reply to the comment left by "Jan Martin" at "12/09/2013 - 18:03":

Hi Jan. Never had the problems you seem to have as most Guarantors do not want a CCJ against their name and the damage to their credit record even if their circumstances have change. If we did ever get a CCJ we would immediately ask for an oral examination at which point the guarantor has to set out all their financial circumstances and assets and faces imprisonment for contempt if they do not. In another business we ran everyone has backed down and paid at this stage. If the oral examination goes ahead you will know the value of all their assets and can then determine whether it is worth sending the bailiffs in and if so which assets to seize.

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