Prompt rental payment discount?

by Readers Question

10:03 AM, 27th June 2019
About 3 weeks ago

Prompt rental payment discount?

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Prompt rental payment discount?

Does anyone use prompt rental payment discounts? In light of no longer being able to charge for late rental payments, could a landlord advertise a property at a slightly higher rate than the property would be advertised for normally, but offer the tenant a discount for each month the rent is paid on time?

For example, I have a room which I am going to rent out for £350 pcm, however, I had the idea of creating a tenancy agreement for the sum of £375 pcm but making it clear to the tenant that if they pay rent on time, they will only have to pay £350.

Can anyone think of a legal problem with this?

Keith



Comments

Neil Patterson

10:10 AM, 27th June 2019
About 3 weeks ago

Hi Keith,

I think under the Tenant Fees Act this will be seen as a charge and not allowed. >> https://www.property118.com/official-government-guidance-tenant-fees-ban-released-today/

“What fees can I ask a tenant to pay?

You cannot require a tenant (or anyone acting on their behalf or guaranteeing their rent) to make certain payments in connection with a tenancy. You cannot require them to enter a contract with a third party or make a loan in connection with a tenancy.

The only payments you can charge in connection with a tenancy are:

The rent
A refundable tenancy deposit capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above
A refundable holding deposit (to reserve a property) capped at no more than one week’s rent
Payments to change the tenancy when requested by the tenant, capped at £50, or reasonable costs incurred if higher
Payments associated with early termination of the tenancy, when requested by the tenant
Payments in respect of utilities, communication services, TV licence and council tax; and
A default fee for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement
If the fee you are charging is not on this list, it is a prohibited payment and you should not charge it. A prohibited payment is a payment outlawed under the ban.

Neil Patterson

10:12 AM, 27th June 2019
About 3 weeks ago

From the official .Gov guidance published last week >> Click Here

DEFAULT FEES AND DAMAGES PAYMENTS

Q. What is a default fee?

You can only charge a default fee where a tenancy agreement permits you to do so and one of the following applies:

1. A tenant is late paying their rent

A default fee can be charged for late payment of rent but only where the rent payment has been outstanding for 14 days or more (from the date set out in the tenancy agreement)
Any fee charged must be no more than 3% above the Bank of England’s base rate for each day that the payment has been outstanding. A fee which exceeds this amount is a prohibited payment.
The tenancy agreement should set out the circumstances under which a tenant is liable for a default fee and how the fee will be determined. This might be called a default fee provision or payment in the event of default provision. Landlords and agents should highlight relevant default provisions within the agreement to the tenantbefore it is signed. Agents must also publicise any default fees they charge on their website and in their offices. If a tenancy agreement does not permit you to charge default fees, you may still be able to recover damages for breach of contract. Most landlords and agents will seek to recover damages by claiming against the tenancy deposit at the end of the tenancy (but may do so at any time through agreement with the tenant or by initiating legal proceedings)

Ian Narbeth

15:21 PM, 27th June 2019
About 3 weeks ago

Hi Keith
I think this might work provided it is clear that you are giving a discount for prompt payment and are not penalising for later payment. Such discounts are common in commercial supply contracts. HEALTH WARNING: this has not been tested with the TFA but it was an idea that occurred to me. The key is that you are not charging for late rent but giving a discount.
You should draw up the tenancy at £375 in your example but state in the tenancy or in a side letter that provided the rent is paid by standing order and received on or before a relevant date you will accept £350. The tenant has the option pay on time by standing order or pay the full rent. The discount should not be disproportionate but £25 is about 7%.

J1 Accommodation

19:57 PM, 27th June 2019
About 3 weeks ago

Dear all, thank you for your comments. I've read the TFA and my thinking is that my proposal isn't really a fee. If I rent a flat for £400 per month and the tenant signs up for it, the tenancy contract highlights it is £400 per month, at the same time, the tenant is advised if the rent is paid on a particular day of the month, they will receive a tenant incentive in the way of a rent rebate of £15....for example, so in effect, they aren't being penalised in anyway for paying rent late, they will either pay the rent amount on the tenancy contract they agreed to or will receive a rent rebate if they pay on a particular day. I hope this makes sense.

Thanks Keith

Seething Landlord

8:10 AM, 28th June 2019
About 3 weeks ago

I suspect that a court would have no difficulty in concluding that whatever the wording of the tenancy agreement such an arrangement is tantamount to a fee for late payment and therefore prohibited. Bearing in mind the draconian penalties under the Act I would not wish to run the risk.
One practical point, you would need to to cater for the occasions when the specified date falls on a Saturday or Sunday as standing order payments are normally not made until the following Monday?

Ian Narbeth

12:10 PM, 28th June 2019
About 3 weeks ago

Reply to the comment left by Seething Landlord at 28/06/2019 - 08:10"I suspect that a court would have no difficulty in concluding that whatever the wording of the tenancy agreement such an arrangement is tantamount to a fee for late payment and therefore prohibited."
Sorry, but prompt payment discounts are very common. The rent will be £X and the AST will require the tenant to pay £X not £X-25. The tenant has a choice: pay the agreed rent of £X or get a discount of £25 for prompt payment. I struggle to see how that can be construed as a prohibited payment. What element is prohibited?

If the landlord is generous he can allow the discount for payment within one business day of the due date or he can require payment to be the business day before when the due date is not a business day.

SamJonesSMS

16:02 PM, 28th June 2019
About 3 weeks ago

I may be missing something, but this seems redundant on the basis that you can indeed charge a default fee (though the fee needs to be clear in the tenancy, and under what terms the fee is applicable (e.g. on each occasion that the monthly rent is in excess than 7 days late, a fee of £25 administration will be applied to the rental account in order to cover the costs of chasing payment from the tenant)).

Seething Landlord

16:26 PM, 28th June 2019
About 3 weeks ago

Reply to the comment left by SamJonesSMS at 28/06/2019 - 16:02If you look at Neil Patterson's second comment on this thread you will see that the permitted default payment for late rent can only be charged if the rent is outstanding for 14 days and is then restricted to 3% above Bank of England base rate for each day.

Joe Armstrong

16:38 PM, 28th June 2019
About 3 weeks ago

I can see both sides to this argument and can see why cynics would see it as a penalty for late payment but what if the 'cashback' was being applied to EARLY payments. ie pay your rent before the due date for a little discount?

Ian Narbeth

17:01 PM, 28th June 2019
About 3 weeks ago

Reply to the comment left by SamJonesSMS at 28/06/2019 - 16:02
SamJonesSMS, your statement is completely wrong. The Tenant Fees Act has outlawed such fees.


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