Premium Tenancies

Premium Tenancies

21:52 PM, 7th February 2012, About 11 years ago 41

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Premium tenancies are something I’ve heard a bit about from a few different landlords in various parts of the Country who don’t know each other. This leads me to believe that these tenancies are more than just an urban myth but I have to admit that they are something I know very little about. However, I’ll share what I think I know and feel free to correct me. I also have some more questions which I hope will develop into a useful discussion for all landlords who hear about Premium Tenancies, search the internet for the answers, and then come across this post.

Premium Tenancies – this is what I think I know

My understanding is that if I take more than 7 weeks rent as a deposit on an AST (Assured Shorthold Tenancy) I will have created a “Premium Tenancy”. As I understand it, the implication of this is that my tenants will be allowed to sublet the property or assign their tenancy without my consent. If that’s true, I might think I’m letting to a lovely couple and subsequently find out that a modern day Ozzy Osbourne is living in my property!

Ever since I first heard this I’ve refused to take more than a months rent up front plus an amount equal to 7 weeks rent as a deposit but even then I’m still nervous about whether I’ve inadvertently created Premium Tenancies.

Can anybody actually confirm that Premium Tenancies do in fact exist and if they do whether my understanding of them is correct please?

I’ve resorted to the internet to find out more as none of my contacts have been able to answer my questions. When I search for the phrase “Premium Tenancy” nothing much comes up. Tessa Shepperson of Landlord Law has written an article about something similar but this doesn’t give me the information I need and the three month deadline Tessa set’s to raise questions via commenting has sadly expired.

If you can answer my questions and throw more light on this seldom discussed topic the chances are that you will become a “legend” as every other landlord or letting agent who searches the internet for more information about “Premium Tenancies” is highly likely to find this article.

Assuming I’m right on the first part of this blog then it is clear to me that landlords should avoid taking more than 7 weeks rent as a deposit like the plague. There are, however, circumstances where landlords might want to take more.

The first example is where a guarantor is prepared to pay a larger deposit to encourage a landlord to provide a home to a prospective tenant whom they would otherwise decline. If the guarantor pays a bond, does this count as a Premium Tenancy?

What if a tenant wants to pay rent in advance? I’ve heard a few stories over the years about landlords who have had a tenants who are on the verge of being able to claim benefits but their savings are over the threshold. Their answer to this problem has been to agree to a reduced rent for an agreed period on the basis that they pay a larger amount up front. This allows the tenant to reduce their savings to a point where they can claim benefits. Does that scenario create a Premium Tenancy? There is also a question over whether this could be benefit fraud.

I have other questions too. For example, if a tenant pays six months rent up front has a Premium Tenancy been created? Instinctively I suspect it has on the basis that anything more than one months rent in advance could be seen as a deposit. I’ve heard stories of landlords renting to Mr and Mrs Perfect who pay 6 months rent up front. When the landlord visits the property he finds a whole tribe of others living there and no sign of Mr and Mrs Perfect. Save for shopping the tenant to the local council for operating a potentially unlicensed HMO it would seem there is very little the landlord could do other than to serve two months notice on expiry of the tenancy. What state might his property be in though? If his tenant is subletting as an HMO what are the implications for the landlord in respect of licensing, insurance etc.?

I know it’s unlike me to create a blog which asks more questions that it answers but I am really keen to debate this topic and to learn something new.

You may have some questions of your own so please post them here and hopefully somebody in the know will appear and answer all of our questions and point us to the relevant sections of law for verification. That way, we will all learn something and we will have created a useful point of reference for anybody else like me who searches the internet hoping to find out what a Premium Tenancy really is. We may also learn how we can structure our arrangements for maximum protection of our investments and what the best practice is for a variety of circumstances which might create Premium Tenancies and how to avoid potentially unwanted outcomes if we get things wrong.

Please feel free to share this article with anybody who you know who takes more than 7 weeks rent up front or who maybe able to comment, either to ask questions or to provide answers which could help many other UK landlords.

Thanks in advance for your help.

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Mark Alexander - Founder of Property118

8:52 AM, 9th February 2012, About 11 years ago

Thank you so much for this Tessa and also for acknowledging the source of the discussion at the beginning of your article on your Landlord Law blog.

Note to all reading this comment. Tessa is is one of a kind, a qualified Solicitor practising within the Law Society Code of Conduct and a true specialist in Landlord and Tenant Law. Tessa freely shares information as a guest columnist here and across several other websites engaging with landlords, tenants and lettings professionals. When you pop over to her website check out the Premium Services. They will save you a fortune and cost less to subscribe to than most people pay to watch TV. The services include Tenancy generation wizards, a legal advice forum, documentation and a huge wiki of pretty much everything you will ever need to know about property law.

I offer the above testimonial in good faith, their is no commercial relationship between me or Property118 and Tessa or Landlord Law.

Tessa Shepperson

9:50 AM, 9th February 2012, About 11 years ago

Thanks Mark, thats very sweet of you.  And yes we are friendly but not commercially connected.  We both try to serve the private rented sector in our different ways.  Both of them important. 

Glenn Ackroyd

10:26 AM, 9th February 2012, About 11 years ago

As Ben Reeve Lewis points out - the statutory references to the premium only relate to;

Schedule 2 Housing Act 1985 (Council/Housing Association Tenancies)
Section 115 Housing Act 1988 (Contractual Periodic Tenancies - which in practice to not exist)

So, unless I'm missing something, they do not exist for private tenancies, even if you take more than 2 months rent.

12:05 PM, 9th February 2012, About 11 years ago

Is it worth the risk, as a tenant may get legal aid to try to prove they do exist.

Mark Alexander - Founder of Property118

12:24 PM, 9th February 2012, About 11 years ago

So am I reading this right that your opinion is that a tenants rights don't change in any way if they are renting on an AST from a private landlords regardless of how much rent or deposit is being paid to a landlord?

14:56 PM, 9th February 2012, About 11 years ago

 Interesting discussion.  I'm with Tessa on this, I can't find any subsequent amendments on this in the Housing Act.  Most of the landlords in our network are foregoing deposits and just going for a couple of months rent in advance, but there has been a lot of expense due to damage and other sundries at the end of tenancies.  I guess it's a judgement call on the landlord's part.

Mark Alexander - Founder of Property118

15:09 PM, 9th February 2012, About 11 years ago

Thanks for joining in Madelana. What's your view on 6 months rent in advance? Is your opinion that that would constitute a Premium Tenancy?

As we all know, Cannabis Farmers love to entice unsuspecting landlords with such offerings. However, I've also come across scenario's where landlords have let to a very genuine, fully referenced, squeeky clean Mr & Mrs Perfect who have paid 6 months rent up front and then allowed their employees to occupy the property. Ever come across that? If so, are the tenants allowed to do that in your opinion? Some would say yes because the 6 months up front rent constitues a premium. Tessa's research suggests otherwise to me.

I like the theory of no deposit and two months rent up front. However, is the second months rent seen as a deposit? My view is that it would be. If it wasn't that would save a lot of hassle and costs of protecting deposits and render the deposit protection legislation pointless.

Dave Gardner

16:06 PM, 9th February 2012, About 11 years ago

I am concerned that taking upfront rent instead of a deposit could be construed as trying to avoid Deposit Protection. 

We have taken upfront rent payments but have also taken a deposit amount which is registered as the deposit, leaving the upfront rent payments in our client account to be released to the landlord as and when they become due.

We have taken larger deposit amounts at the request of our landlords where they have previously had their fingers burnt with poor quality tenants (not supplied by us I hastened to add). We did not see this as an issue as long as the tenant agreed as we understood that the Premium Tenancy/sub letting issue did not relate to ASTs. 

We will continue to watch this discussion with great interest. 

Dave, Top Management Letting Agents for Northamptonshire

Tessa Shepperson

19:13 PM, 9th February 2012, About 11 years ago

If you take a large sum as rent in advance, my view is that
this is not a deposit.  The essence of a
deposit is that it is held a security and might be paid back.  If a landlord takes six months rent in
advance (and the rent account shows the rent as paid for the following six
months) he is not going to give it back. So I don't see how this can be a
deposit.  (The situation may be different if it is the agent who holds the money if they fail to pass it over to the landlord at once).


There have been cases where landlords have taken a payment
as rent but have not offset it against the rent account immediately, where it
has been held to be a deposit.  For
example see this report on the Nearly Legal blog


But in that case it seems to be clear that if the landlord
had offset that money against the rent as soon as it had been received, it
would not have been deemed to be a deposit.


The problem with large up front rent payments is not, so far
as I can see, that they may turn out to be deposits, but that it may affect the
period of the statutory periodic tenancy that arises at the end of the fixed


I discuss these issues in my blog post here

19:52 PM, 9th February 2012, About 11 years ago

Thanks for a very informative topic. As has been mentioned, the way of avoiding the chance of creating a premium tenancy would be to take x months rent in advance. I think this just goes to show that even genuine and honest landlords acting in good faith, could come unstuck because of little known laws and small print.

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