The latest ruling in the case of Johnson vs Old clarifies the distinction between rent paid in advance and security Deposits held in case of loss or damage to the property.
You will probably have been aware of the ongoing case between Johnson and Old, which questioned whether money taken in advance for rent was in fact a Deposit in the eyes of the law – and as such should be protected by the landlord in an approved scheme.
For those not in the know, in this case the tenant could not prove a reliable credit history before letting the property. So she was asked to pay the first 6 months in advance. After renewing a couple of times (paying six months rent in advance each time) the tenancy finally became a periodic tenancy, and the tenant simply paid each month in advance. Later the tenant fell into arrears and when the landlord served a Section 21 notice the tenant argued that it was invalid, because the initial 6 months rent paid in advance was a ‘deposit‘, and so it should have been protected. In the initial case the judge agreed with the tenant and ruled that it was a deposit. As it had not been protected the landlord would then have to return the whole 6 months rent and may have been liable for an amount up to three times that initial amount.
This is good news for everyone involved in letting, the landlord, agent and the tenant all benefit from the decision of the court of appeal.
Paying six months rent in advance where tenants who do not fit into strict financial guidelines is common practice in the industry. It allows them to secure property if there are credit issues; where tenants are coming in from abroad; or have just started work etc. to be able to rent a property when they don’t tick all the boxes in terms of financial references. This money is never meant as a tenant’s deposit it is simply to ensure rent is paid during the fixed term of the contract, where it is harder for a landlord to accelerate a Notice for Possession through the courts if it is necessary because of non-payment of rent.
If landlords felt that this was not a secure and simple option for them they would be unlikely to rent property to tenants in this position, which would be bad for the rental sector, as one of the reasons people are renting is because they have financial irregularities or they are in a job which moves them around the globe regularly. This would reduce the market for Landlords and their agents to be able to let to, and it would reduce the stock of properties available to tenants.
We can now all get back to the business of renting property
We recognise the need to secure tenants deposits at the beginning of the tenancy, and to disburse them appropriately and transparently at the end of the tenancy, and we always ensure this is done at Riley Marshall. We welcome this sensible ruling on a cynical suit, brought by a tenant who could not meet her financial commitments, and so turned on her landlord to shift the blame.
If you want to find out more about deposits and the procedures for protecting them please go to our blog ‘How secure is your deposit?’. We are always happy to answer questions about the letting process, renting property, deposits or references. We rent and sell property around South West London. So if you are a landlord or a prospective tenant please call us on 020 7394 1160.