Tenant offering to pay 6 months rent up front

Tenant offering to pay 6 months rent up front

12:03 PM, 10th January 2014, About 8 years ago 68

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We have just recently bought a property and are renting it through a letting agent.

They have possibly found us a tenant 🙂

She is currently renting in the area and wants to downsize but she wants to pay 6 months rent in advance.

My feelings are that this is not a good idea.

My husband can’t see a problem, but I am a bit dubious.  Tenant offering to pay 6 months rent up front

Can anybody help me overcome my fears on this?

Many thanks

Sue



Comments

by Mark Alexander

11:26 AM, 14th January 2014, About 8 years ago

Reply to the comment left by "Robert Mellors" at "14/01/2014 - 11:10":

As you say, there appears to be no case law on rent accounts being in credit. However, if your idea of taking the first monthly payment up from followed very quickly thereafter by a payment of 5 months rent on account then my opinion is that the jidge would see this as described as Industry Observer, i.e "contrivence". Based on such a ruling the law really could become as pedantic as you you have described and a real pain in the ass! Imagine the admin headache of having to protect a deposit if a tenant did ever get ahead on their rent by even £1. Nightmare scenario!!! I just hope you and other landlords don't push this point to the extent it is ever challenged in Court.
.

by Industry Observer

11:53 AM, 14th January 2014, About 8 years ago

Good advice from Mark

Just because there isn't Case Law on anything don't mean it's legal - and who wants to be the test case anyway?!!!

Always remember in TDP matters if you get it wrong you are vulnerable - especially post Localism Act you may register late or pay back a deposit (or advance rent!!) but the offence has been committed and there is no escape other than paying off the claimant tenant!!

Why risk it?

by Romain Garcin

13:50 PM, 14th January 2014, About 8 years ago

Ah but there is a case law, and that's the previously mentioned Johnson v. Old case, which was exactly about this issue: Agreement provided that tenant had to pay the 6 months worth of rent in advance, tenant later defended s.21 notice on the basis that this was in fact a deposit.

The court found that this was not the case: Basically that payment is not a security but indeed a discharge of future liability. Hence not a deposit.

Regarding the periods of the following statutory periodic tenancy, the issue stems from s.5 of the Housing Act 1988 (which defines SPTs):

"(3) The periodic tenancy referred to in subsection (2) above is one—
...
(d) under which the periods of the tenancy are the same as those for which rent was last payable under the fixed term tenancy;"

So both landlord an tenant must be careful as to how often the rent is last payable in the fixed term tenancy.

The recent decision about the possibility to use s.21(1) notices during periodic tenancies may solve this issues for the landlord (but not for the tenant) as discussed in a previous thread.

by Industry Observer

14:31 PM, 14th January 2014, About 8 years ago

Oh Romain NO NO NO.

I know s5 inside out and that only applies to this case, of course, because the CoA decided the period of the rent was 6 months. Johnson v Old held that it was a 6 monthly rental payment therefore the money paid was not a deposit.

They could just as easily have found it was a monthly deposit because the cannibalisation by the agents of a perfectly good agreement caused them their problems. There are a number of informed legal commentators who believe the Landlord was very lucky in this case.

In para 34 or 35 of the decision the lead Judge states quite clearly that had it been i.e. had they decided that it was a monthly (or two monthly the way the agents messed about with it) rent payment period then it would have been a deposit and the tenant would have won.

This is precisely why TDS were so daft to cme out with their pronouncement.

The world of TDP and rent in advance v deposit is still a very complex one. Johnson decided one particular case, not all of them (no CoA case ever does that anyway) so continue to proceed with care.

by Romain Garcin

15:53 PM, 14th January 2014, About 8 years ago

I re-read the whole case: you are right that it does not cover all cases for rent paid in advance.
However, it seems clear that the decision does say that if the tenancy agreement states that tenant must pay the first 6 months in advance then that payment is not a deposit.
It doesn't seem that tenancy periods determined by s.5 were used to reach that decision (I was not mentioning s.5 in relation to this but just to provide a reference re. periods in periodic tenancies).

by Industry Observer

18:08 PM, 14th January 2014, About 8 years ago

Of course not.

The last period of payment for the rent was deemed to be 6 months so that is what s5 would then trigger.

The agreement was so contortionist that the CoA might have held it to be monthly or 2 monthly but the Landlord got away with it. He could just as easily have lost.

What an agreement cannot say is that the rent is payable monthly and then demand 6 months up front. That is where you have to avoid the word monthly until after the initial period covered by the lump sum has expired.

Hence fr a 6 months up front case you make the initial term 7 months with the lump sum covering the first 6, then a stated payment for month 7 of a months rent, and then state monthly thereafter

by Romain Garcin

19:35 PM, 14th January 2014, About 8 years ago

I am not sure I follow you, as you seem to mix two issues.

On the one hand:
"What an agreement cannot say is that the rent is payable monthly and then demand 6 months up front."

This is the case of Johnson v. Old. Rent was stated as monthly paid in advance and the was an additional clause that the first 6 months were payable up front.
My understanding is that the court held that this causes the first 6 months rent to be payable and due at the beginning of the tenancy, and hence that the corresponding payment was not a security and thus not a deposit.

On the other hand:
"Hence fr a 6 months up front case you make the initial term 7 months with the lump sum covering the first 6, then a stated payment for month 7 of a months rent, and then state monthly thereafter".

This is not related to the issue of whether rent in advance is a deposit, but is rather about the issue of determining the period of the SPT that follows a fixed term tenancy based on how often the rent was last payable during that fixed term tenancy.

by Industry Observer

23:17 PM, 14th January 2014, About 8 years ago

The last payment in the 7 month fixed term is a one month payment - get it?

by Industry Observer

8:57 AM, 15th January 2014, About 8 years ago

@Romain

This is my last post on this thread I seem to have spent most of this decade on rent in advance etc issues. One last try

The trick is to keep the word "monthly" that specific word out of the text detailing the rent payment and what the lump sum taken covers.

You then refer to the rent being paid in month 7 as £x and then you state "and £x on the same date monthly thereafter" thereby creating a monthly periodic tenancy from month 8 onwards. This technique is used where the tenancy may be allowed to go periodic.

If the LL just wants to let for 6 months full stop then the rent is simply described as say "£6000 from 1.1.14 to 30.6.14" and you serve a s21(1)(b) soon as you can with end date 30.6.14 if tenant doesn't vacate then a periodic tenancy is automatically created but instead of being stuck with a new 6 months notice you have already served the notice to end of term.

This is the system recommended by RLA Romain and I have posted the exact wording before.

Alternative is to create an AST which when it goes periodic becomes a Contractual Periodic, not a statutory one so the notice provisions for statutory periodics (whatever they may be post LJ Lewison) don't apply.

That's it, I'm out

by Neil Gammie

23:49 PM, 15th January 2014, About 8 years ago

6 months upfront? wrong wrong wrong. Walk away - I rent out properties in Edgbaston Birimingham (a 'nice' area) where the police say at any one time up to 200 cannabis factories/farms are operatng and we have police helicopters doing their thermal imaging thing virtually every night. If you rent out to somebody waving fistfulls of cash in your face you are a complete sucker - and oh, by the way, they wreck your property in the process. Wake up.


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