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

20:10 PM, 9th February 2012, About 11 years ago

Hi Tessa

Another way to look at that scenaro is that on month one the landlord is holding five months rent on deposit and amortising it over the next 6 months.

20:21 PM, 9th February 2012, About 11 years ago

As I think I was the inspiration for Mark's  very useful blog on Premium tenancies for which he gave me important points to consider; prior to this blog I wanted to advise as to what iI will be intending to do to see if it conforms to all the discussion so far.
I have a AST for 6 months and then onto a SPT  for £12000.00 per calendar year to be paid monthly at £1000.00 pcm
I intend to take £2000.00 as a deposit.
This amount is not OVER 1/6th of the rent.
Presumably if I took £2001.00 as a deposit then as Tessa has mentioned I would have take more than 1/6th of the rent.
Have I understood this correctly?
I have to say with all this conjecture as to the prmium tenancy issues; I might take the action that Mark suggests and just take 7 weeks rent  equivalent as a deposit to avoid falling into a premium tenancy trap.
Until a tenant would wish top pursue a case in court I can't see any determination being arrived at that we could all feel confident in.
I do not wish to fall foul of a savvy tenant and would prefer to take the safest route.
Regarding advance rent  in lieu of a deposit; I am sure it has been mentioned here or possibly on other forums that if such advance rent is used to cover damages then if walks like a deposit, quacks like a deposit then it is a deposit and therefore must be priotected in accordance with deposit regulations.

20:50 PM, 9th February 2012, About 11 years ago

Mark, there are some really interesting comments posted on here. I hadn't actually heard of this term until reading your article. Having worked in Lettings Agencys before setting up on my own i've come across many instances where a tenant has paid 6 months rent upfront, usually because they had been abroad for a long period of time and had no credit history. Looking at what Tessa says, as long as this is rent which is being paid to the landlord and a separate deposit has been taken and protected with the DPS for example then there wouldn't be a problem. I'm following this discussion with great interest!

Mark Alexander - Founder of Property118

21:19 PM, 9th February 2012, About 11 years ago

That's the story cover story behind pretty much every property which turns out to be let to a cannabis farmer by an unsuspecting landlord, have you checked these properties recently?

21:53 PM, 9th February 2012, About 11 years ago

With regards to taking 6 months in advance we take 5 months in advance, on a 6 month let and then take the 6th months rent by standing order to avoid creating a 6 monthly period therefore requiring 6 months notice to vacate and we find this works well.

Mark Alexander - Founder of Property118

22:07 PM, 9th February 2012, About 11 years ago

I've never come across that strategy Sally, please can you elaborate? What percentage and profile of tenants go for that?

If some of the suggestions here can be corroborated I might change my strategy and target market. That is IF:-

1) Advance rent is not treated in law as a deposit
2) "Premiums" are not relevent to private landlords and hence do not affect tenants rights in respect of subletting
3) There is a tenant profile and marketing strategy to access them I've overlooked.

I'd like to bet there's somebody out there who knows all the answers and can quote chapter and verse, case law etc. but is just sitting back to see how this discussion unfolds.

9:27 AM, 10th February 2012, About 11 years ago

 That was at an agency I worked at previously Mark, it's not something that i've done since setting up on my own, & I definately would'nt consider it now!!

Mark Alexander - Founder of Property118

9:42 AM, 10th February 2012, About 11 years ago

Do you have any huicy stories you could share on the back of that strategy. I'm not interested in a 'name and shame', just stories which might alert other landlords to the dangers. Any stories would need to be on a no names basis to protect people from embarrassement. If you do, and you would be interested in writing a Guest column, please get in touch -

11:52 AM, 10th February 2012, About 11 years ago

Its common for tenants to want to pay six months in advance when they are in situations that do not tick the boxes of the referencing criterie, like they have just had a career break and therefore do not have 12 months consistent employment to show to meet crietria, there are many more examples of course, but in these cases they will offer to pay 6 months rent in advance, we do about 1 of these every couple of months in our Wolverhampton branch so it is quite normal.
The problem with taking 6 months in advance on a 6 month tenancy is that you are potentially creating a 6 monthly period (rent paid every 6 months for a 6 monthly term) therefore in the event of you wanting to give notice to your tenant, you should in fact have to give 6 months notice to vacate as opposed to normal two months for a monthly tenancy.

13:43 PM, 10th February 2012, About 11 years ago

Lot of people I have worked with in Cambridge have had these
types of issue when they come to rent, due to having worked outside of the UK,
or moving in and out of self employment depending on the demands for their
skill sets.

When past customer/employers are located round the world,
likewise for past landlords, normal referencing criteria don’t work!   I even knew someone that could not rent short
term var the agent that was managing his larger property, as he did not tick
all the boxes for RGI.

Yet these are often people with lots of money in the bank
and very good earning power.

Sally I am very glad you have a solution that work, I was not
however expecting it be needed much in Wolverhampton,  or maybe you are getting the hard cases that
other agents will not  touch.

Given all the questions over Premium
Tenancies etc, should a system be created when a tenant could lodge
money with a lawyer that would only be release back to the tenant when the
landlord confirm no legal action was being taken against the tenant or any action
had been concluded?

Once again the laws that were created to protect tenants are
working against the best interests of tenants…

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