Rent paid in advance does NOT count as a deposit, the Court of Appeal has ruled.
The landmark ruling means that landlords and agents are not obliged to treat rent paid in advance as a deposit which requires protection under the Housing Act 2004.
The Court of Appeal’s decision was in the long-running case of Johnson v Old, where the tenant was offered a six-month tenancy and – because she did not have a set income – was asked for six months’ rent in advance.
The agreement in the case provided a muddling factor, because it said the rent should be paid monthly in advance, but also said that the rent should be paid six months in advance.
The tenancy was renewed on the same terms before becoming a periodic tenancy where the rent was paid monthly in advance. When the landlord tried to serve a Section 21 notice to gain possession of the property, the tenant, Anne Old, countered by saying that a Section 21 could not be served because she had paid rent in advance which should have been treated as a deposit and protected.
The tenant’s argument was successful at the first hearing, but was then challenged successfully by the landlord at a second. The tenant appealed, and with the help of legal aid, the case then went to the Court of Appeal, which gave its decision this week in favour of the landlord.
The Court of Appeal had applied the test of asking how the tenant would have responded had she been asked to make a further payment of rent for one of the months covered by the six months. It decided that the tenant would have said she had already paid it.
Had the landlord lost the case, with the Court of Appeal deciding that the rent in advance was a deposit, the penalty would have been the return of the six months’ rent in advance plus a penalty of up to three times the amount.
The case was complicated by the drafting of the tenancy agreement, underlining the need for care and clarity.
However, news of the decision will be greeted with relief by landlords and agents concerned about whether they should accept rent in advance.
Steve Harriott, chief executive of the Tenancy Deposit Scheme, said: “This is a very helpful clarification of an issue which has been concerning landlords and agents.
“The judgement in this Court of Appeal case should assist those landlords and agents who want to ask for rent in advance and who can be reassured that this is not a tenancy deposit that needs protecting under the Housing Act 2004.”
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Comments
Just thought I would join this post, note I am not hiding behind false names.
I can confirm the tenancy agreement was, as IO said, and edited version of the standard TFP agreement (I am not able to confirm which version , other than it was greater that version 3). The problem, and strangely the saving grace, lay in the amendments made. We do not know whether this was an agent user or a landlord user.
1.7.1 down to 1.7.7 were as far as I can tell pretty standard "straight out of the box". 1.7.8 was bespoke as Mrs Old had no income the agent took all the rent up front and said so in this clause. 1.7.9 was also bespoke drafting and allowed for referencing at the en of the fixed term. We have always taught that provided you define the rent as "£XXX for the first six months" this should not be a deposit and this was confirmed in the case. The problem here was caused by the mention in 1.7.1 and 1.7.3 of a monthly rent and in 1.7.8 or a 6 monthly payment. This left it unclear if the rent was due monthly or 6 monthly. The court felt that you had to read the whole of 1.7 to try and make sense of it and so decided that the mention of a monthly rent in 1.7.1 referred to the rent due after the fixed term and that 1.7.8 was the 6 months rent due for the fixed term. I have to say I think this does not recognise that 1.7.3 said £1000 was due by the 1 May 2010 and 1.7.8 said £5,700 was due by the 1 May. There was greater confusion that they allude to but I guess if the parties do not raise the issue........ . (The £5,700 was obviously and error stemming from this being the third renewal from a tenancy that had previously been £950 per month (£5,700 for 6 months) and they failed to amend this part. The court accorded little to this.
I am delighted to see the issue of the section 21 notice dates coming up as this was not actually raised in the case. They could have ignored the deposit protection issue and simply argued neither section 21 (4) notice was valid. I don't have any information about the section 21 notice but it is probably not unreasonable to presume it may have been our notice and even with the saving clause included, it would have failed as the standard saving clause expire "two months after the service of this notice" which would not have been long enough. Clearly an issue for us to all watch. The periods of the statutory periodic are defined as the payments for which rent was last payable under the fixed term (Church Commissioners v Meya looked at this in detail)), hence the concern about the long notice.
Around the discussions below, there is no mention of one of the points raised and this was that by the time the notice was served the tenancy had gone statutory periodic (they had not invoked the horrible bi monthly rental payments clause in 1.7.8 nor had they re-referenced. The judge specifically mentions that the money collected in April 2010 was in respect of the fixed term tenancy and not in respect of the statutory periodic tenancy that arose in the 1 November (my words not his). However, he does seem to be making the point the money taken (what ever it was, deposit or not) was not in respect of the statutory periodic. with the wording used, nothing hinges on this but if different wording had been used, then a claim during the fixed term might have had a different outcome. (see para 26 and 38 of the judgement).
I think it is fair to say that the court decision was pretty clear that the decision was based on the wording being used. I quote "It is, I think, common ground that, if part of the payment made on 29 April 2010 was a payment as security for the future payment of five months' rent not then due, then and to that extent, the payment was a "tenancy deposit" " You will note that the judge says that had the payment been as security for future months rent NOT THEN DUE, then part of it would have been a deposit. This shows pretty clearly that it was the agreement that the money had to be paid in a six month block, got them off the hook. There would have been a much smaller "hook" if they had not mentioned the monthly rent and added to the confusion. (see para 34 of the judgement for the above quote. Para 36 allows says similar about the thing that mattered was that the obligation was to pay it not. not pay it in the future,)
In fact, it is quite possible, they may have got away with this even if there had been no mention of the 6 months rnt in the tenancy (but I would not like ot have tried it!!!). This is because if the agreement to pay the 6 months rent was verbal it could still, with greater difficulty, be argued that the agreement was that the first 6 months rent were to be paid up front. Avoid the problem, put it in the agreement and don't mention two payment periods.
Can you take the last months rent and simply make it payable on move in? Reading the judgement as face value you should be able to. After all if the payment was "due" on move in, then under this judgement it would not be a deposit. the danger, which the court case does specifically mention, is that courts should be wary of clever wording the agreement to seek to avoid the intention of the legislation.. This is the first time we have seen this. In the Dunsford case the rent increase clause in the tenancy could increase rent by a number of amounts including from about £6,000 to £25,000! The court applied the same principle and said this was not really a rent increase clause but a way of seeking to circumvent the intention of the law and they struck it out (never mind the Unfair Terms in Consumer Contract legislation!)
Robert, your concern about the money in the draw is not the point in law (though I accept the law may be flawed). This case specifically discussed when the rent was paid by the agent to the landlord and held this was completely irrelevant as the law does not control this payment. Sadly, as many landlord have found out with agents failing and using MyDepoists, the landlord is not protected by the legislation (though some schemes may). If the landlord allows the agent to collelct 6 months up front and hold the money that is legally fine. In this case it would be very wise of the landlord to look more at the probity of the agent than the commission rate they charge.
We are talking about the Johnson V Old case in our current legal update courses along with lots of other legal cases and changes. Contact me if you would like more info.
I hope this explanation helps.
How safe does everyone think it is to Issue 6 month ASTs that state
"no deposit is taken and rent is paid monthly in advance with the exception of the final month's rent, which is paid in advance at the start of the tenancy."
It's a bit different than the 6 month's rent in advance scenario, but it is still clear that it is rent and not due to be returned to the tenant
@ look it up
Hallelujah
Dead right - and below as posted by me on 25th April (plus corrections afterwards!). This is the RLA recommended method I believe certainly as recommended by GRELA.
I repeat on a 6 month tenancy £1000 a month £6000 paid up front make the tenancy 7 months 1.1.13 to 31.7.13. State the £6000 covers 1.1.13 to 30.6.13 rent is £1000 for 1.7.13 to 31.7.13 and £1000 monthly thereafter payable 1st monthly.
Come on guys you should know this, of course IO's right!
S21 1 (b) covers the fixed term with min 2 months notice and S21 4 (a) covers periodic with last day of a period of the tenancy and not less than 2 months.
So if you take 6 months rent in advance for a 6 month tenancy then the 'period' of the tenancy is 6 months and therefore the notice is 6 months; same goes for 12 months.
Best you word the tenancy and only accept 5 or 11 months in advance and have the final month paid as a month in advance payment. This means when it turns periodic the 'period' is monthly.
@Ray
I of course meant "fine" at the point of issue and purpose it was originally designed for. The error was the agent making the amendments instead of the original draughtsman. Had they asked them trust me it really would have been "fine" - but if you want to debate semantics?!!!
@TOOTIO and HAWKEYE
As I thought it is 6 months maximum notice but Hawkeye is well named and you are correct to support him because, of course, that 6 months must run to the end of a period of the rent as dictated by the last fixed period.
So it is the equivalent (only worse oh dear Ray don't debate semantics with me after all!!) of a typical standard periodic situation where the LL if unlucky can find himeslf almost giving three months to hit the end of the monthly rental period.
But in longer rental periods the effect gets exaggerated, which is where you are of course both correct. In a quarterly rent it might almost be 6 months, in a 6 monthly a year and in a yearly one two years or longer.
Very well spotted and a valuable point for rent in advance Landlords to bear in mind. Avoidance is by issuing the s21(1)(b) within the term (but after protecting the deposit!!) as it is only ever 2 months no matter what else is going on, and once served has no sell by date.
@Industry Observer on 2013-04-30 09:50:46
If the agent 'amended' the prepared agreement it became the Agreement and was therefore not 'fine'.
@TOOTIO and Hawkeye
No the notice period in the 21(4)(a) must match the last rental period in the fixed term. So if it was a 6 monthly rental payments case doesn't matter how many years later the notice is given to end the agreement it is 6 months notice.
It is not two rental periods except that in monthly cases oit happens to match up because the MINIMUM is 2 months notice.
Any longer e.g. quarterly, half-yearly, and it must match the longer rental payment period but I think 6 months is the maximum, so would apply on an annual rent too.
But am double checking that with those more learned than me (or with younger and better minds!!).
@Ray Evans
The agreement was fine I know the source it was the agent's amendments that were not. They might just as well have been tampering with the ARLA standard AST model agreement - they and their PI insurers must be mighty relieved the LL won!!
The actual Tenancy Agreement was and is the basic problem. It seems to have been badly written and whoever did it should be called to account!
@ I/O - If I am understanding what Hawkeye is saying correctly
i.e. a section 21 notice being served when on a periodic tenancy, must give 2 rental periods notice to the Tenant. In this case it would be 12 months (2 x 6 month periods). He is then absolutely correct in his second paragraph.
@Industry Observer I can confirm the Robert M on Property 118 isn't me.
When you asked about money held in perfect isolation, you caused a very large penny to drop; Those with good legal knowledge are not necessarily au fait with what is happening with Client accounting, certainly it is true the other way around the accountants don't always readily understand the Law side of things.
Could it be that the industry needs to work out who the stakeholders are and get them in a room together to thrash out a comprehension of the grey areas such as this?
@Hawkeye
The notice period in a s21(1)(b) is a minimum two months. You can give longer if you like but do not have to.
The longer terms, as dictated in the note on a 21(4)(a) and as dictated by having to match the notice needed in a Notice to Quit only applies in the periodic term and to the periodic notice.
Your first comment is absolutely right about making no mention of a monthly period in any agreement where the rent period is not monthly.
Your second paragraph I am afraid is completely wrong
Oh dear. This was a court case waiting to to happen. You just can not have a 6 month tenancy stating monthly payments. The rent period is 182 days or 183 in a leap year.
The only problem then is the section 21 notice which is for the same period as the stated rental period i.e. 182 (or 183) days. So what we laughingly call a 6 month term is a 12 month term and then the notice period is served which makes it an 18 month agreement!
Dipstick fool who did the tenancy was obviously a rank amateur who was probably doing sales until the week before he tried to do an agreement without the knowledge expertise or ability to understand how they work. Not only should he or she have gone to specsavers should have taken legal advice as well but I hope he or she had brown trousers on when the manure of the court case hit the fan. With a bit of luck they will no longer get involved in matters that they do not understand.
I am fairly sure I would know if I had been introduced to a Mr Industry Observer so without knowing who you really are it is hard to say.
The bit about collecting the last month's rent and as you say keeping it in splendid isolation is perfectly possible if your write it so in a ledger system;
Received £xxx for rent due XX or have a software system that has an unallocated cash routine designed to handle Advance rental payments prior to April 2007. [When CLG first decided Advance rent was a deposit as they hurried TD legislation out the door in under 3 months, I have those emails somewhere too]
Money will sit isolated from the normal rent ledger and sit separate from the deposit ledger in an unprotected limbo land of a tenant ledger account.
If the cash total of normal rents received month by month plus this additional unallocated (but intended to be the last month's rent ) cash equals the total rent due, matching the tern to be discharged a situation has been created where advanced rent is a effectively exactly the same as a deposit but one which need never be protected.
I put my hands up and admit this is no clearer now than it was yesterday, not because I do not understand the explanation of this case law but because I understand how the mechanics of Client cash accounting creates the situation where two equal amounts of cash destined for use at or about the same point of time can enjoy polar opposite levels of protection dependant on what an agent chooses to call it and how they enter it into whatever system they are operating.
@ Robert May
You're not the Robert M currently exchanging with me elsewhere in another life are you?!!
Anyway I wondered if your final comment about the last month was a tongue in cheek one as I can't see how you could collect one month in advance and declare it as such and in splendid isolation to apply ages later in even an otherwise 'normal' 6 month tenancy, never mind a 12 month one.
The whole point of Johnson is that the payments match the term they are specified to discharge within the agreement, and that this payment period follows on soon after the payment is made - unless that was just coincidental in Johnson, though that is normally what you would expect to happen. Collecting the first month's rent first, not the last!!
In effect Johnson seems to expect that the rent in advance covers the next following occupancy period.
If rent is collected while holding that money then that money (your last month in your example) becomes a deposit courtesy paras 34-38 in the judgement. It is collecting rent while holding rent that is the real problem.
Having said that equally if written into the agreement you could argue that in a 12 month tenancy you hold the last 6 months payments as rent in advance while the tenants pay the first 6 months and as the obligation to pay those final 6 months is discharged now by the initial payment in advance that is in line with Johnson and not a deposit.
Only a Court can decide these variations which are bound to follow sooner or later.
he gets 20 odd pages to blah on about why advanced rent is not a deposit in one particular and unique circumstance and you are bitching about folk explaining their position in a few paragraphs.
Would you prefer we all shut up and just accept the inconsistencies handed out to us?
Personally I would rather read 3 pages of thought on the subject than a single sentence troll attack on someone who has bothered to post on topic.
I was looking into a matter and asked Communities and Local Government to explain in words I could understand what the definition of a deposit was. It related to the practice of keeping back holding deposits till the end of the tenancy to cover any unforeseen charges. The Holding deposit was the Dilapidations deposit but the agent concerned was bypassing TDS and was arguing that because he could call it what he liked as far as his system was concerned the money did not need protecting.
The response (on a backup external hard drive I am not going to access for the purpose of this post) was that any money that could or should be returned to a tenant should be considered a deposit.
The reply was not a quick off the cuff response from Mary on the helpdesk , it took best part of two weeks to consider the question and respond.
I asked about Advanced Rent in case the agent wanted to change the name of his pot of ‘Holding Deposits’ to ‘Advanced rent’ in order keep it out of one of the schemes and was told the same thing if there is a chance that the money could be returned to a tenant it should be treated as a deposit.
Who can now explain to me why they think £1000 advanced rent not due to be paid to the landlord for many months to come should not be protected in any way, yet £1000 which might go to the landlord, might go back to the tenant, might even go legitimately to the agent in many months to come should be protected.
Many tenants stop paying their rent 1 month early so they can fund the deposit of their next rental. This is why many agents traditionally held the Last month’s rent as security against not receiving that rent.
It seems to me that it is now OK to collect the last month rent at the beginning of the tenancy. Correctly and honestly, label it as advanced rent and keep it unprotected in whatever bank account an agent chooses just as they did pre April 2007.
Will do my best but the devil is in the detail hence the danger in the TDS one sentence sweeping summary.
At least you didn't disagree with anything - yet!!
Highlighter pen, genius!
Do us a favour though and try to summarise your thoughts rather then have them spill out all over the page. Unlike me some may not be bothered to read them right to the end, just saying.
@ Robert May
Interesting posts on your discussion point and just for interest a lot of importance is attached to this factor of intent ()correctly) and the deposit being returned as being indicative of whether it is just that or not (incorrectly).
May I just point out that nowhere in the HA 2004 or Localism Act 2011 is there any reference ever made as to whether any intention is to return a deposit or not.
There are some highly regarded and qualified legal practitioners who place emphasis on this "return" of the deposit and an intention to do so, also citing other Case Law.
But in terms of TDP it is not mentioned anywhere. It may be implied, but nowehere is it set down as having any part in any considerations over whether money is a deposit or not.
No idea if that helps but the point needs making
Goosey Goosey
Do us both a favour and if we are to exchange, apart from needing greater civility on your part, try and use the same posting name as I do. The troll reference I didn't even fully understand myself and for sure wasn't me I only ever use IO.
S45 we all make mistakes - or at least I do and admit them. What I don't usually do is continually harp on about them, especially in personal relationships. But what you do is up to you.
I have read and re-read the full transcript of Johnson and spent well over an hour on it this morning with a highlighter pen, and think I have now almost memorised it. Here are my thoughts - all mine I promise you and as posted on other forums as well.
The first point of interest is para 7 and the s21(4)(a) notice. I'd like to know if that stated 6 months as it needed to (as the last fixed term was 6 months before the periodic arose in November 2010) but annoyingly and as is so often the case with the CoA judgements are only given and comment often only made on the specific appeal issues as Sir John said more than once in this decision.
For example what Old should have done if they wanted money was issue the claim on the original deposit and the PI not being correct which I'd lay odds it was not. Another interesting question is as so many people are now quesrying the whole affair as being a waste of time and taxpayers money (including Shoosmiths Johnsons sols) why did Justice Lewison allow the appeal to the CoA in October 2012?
However I digress so back to the plot, and this issue of whether Johnson now gives open season, as TDS seems to think it does, that rent in advance needs no protection as it cannot be a deposit.
You and others are absolutely correct in saying that it is intent and purpose that matter, and Johnson says this specifically in para 20 and also in para 35. However in para 20 it makes reference to landlords getting creative in trying to avoid the rigours of TDP and that Courts need to be alert to this. Sadly this judgement no longer says that alertness can now be relaxed, in my view because it cannot.
So in effect if the advance payment is not a deposit fair enough, but if it is then treat it as such.
Having taken clause 1.7 as needing to be read in its entirety convoluted as it is I think that has to be correct, Johnson eventually goes on to say in para 36 that this payment was clearly discharge of the obligation and not security - game set and match to Johnson but I still think given the conflicting shambles the amended tenancy agreement is, that he was lucky.
What is clear from Johnson is the need to specify in the tenancy agreement exactly what period of the tenancy the amount collected covers and in many instances when rent is taken in advance this is not done. Johnson now makes this an imperative.
In Johnson the payment was made close to the start of the 6 monthly period, covered that period, and so dicharged the obligation. But paras 34 to 38 make it clear that in certain instances money taken in advance and stated as being for rent actually may (and probably in my personal view will) still be a deposit.
Examples are the old system of taking the 6 months up front but then seeking payments from month 5 onwards but another is where the payment may not covver sequential months during the tenancy, and indeed arising immediately after the payment. Such as taking 6 months, using the first three, then holding the other three to cover the last three months as some student landlords do.
My commitment and interest are absolute because I have fee paying clients who misguidedly seem to think I know a bit about legal letting matters. When I say "it makes no difference to me" I mean financially - I'm not the one that will be sued for a penalty. Or failing to get a gas safety renewal etc.
Thicker skin is not need if civility reigns.
I don't mind anyone debating anything with me, proving me wrong or whatever. It's unnecessary rudeness and patronising language that I object to. But then in terms of this credibility of mine which you seem to think is shot to shreds in all the time I have been posting here and elsewhere I can't recall anyone but you agreeing with you. Maybe one or two but no more than that and usually with greater civility.
Is that the problem and why I seem to get under your obviously so much thicker skin so much? You say you've made peace with criticism maybe you've brought it on yourself more and so had more practice?
'What is the intent behind the word ‘could’ in the précis version of tenancy deposit legislation? '
Can you to cut and paste what you're reading that includes 'could'
Welcome back IO, spittle and all. Nice to see you didn't quit on your stool after all.
Equally, our barbs have gone back and forth but who knew you bruised like a peach. Yes I can be sarcastic and patronising but we're both grown ups so whilst its something my therapist and I will have to work on, for the time being your going to have to deal with it; however In the interests of civility I shall refrain from any personal insults.
We go way back on this issue IO and its well documented on this forum, from you quoting s45 then admitting its unjustified, to even saying you should never have mentioned it; and then using it again. To wanting the courts to decide, only to now ignore them in favour of the trade press. Its not a good look advising others to read things before commenting and then doing exactly that yourself; and if you say its your last post…With such a tradition for contradiction I think its reasonable to question your credibility.
When you use phrases such as 'doesn't matter to me/makes no difference to me' then its reasonable to question your commitment or interest; and when you post resolute statements as if fact, but on closer scrutiny you concede are either the opinions of others or just your humble own, then with no visible frame of reference its reasonable to question your knowledge.
I don't agree with what you wrote about rent in advance/deposits and I've fully explained why. I've provided supporting evidence to within an inch of its life and I've even role played your scenario to show you it cannot be applied in the real world. Again, this is all recorded on this very website so you'll forgive me for thinking that maybe you're waiting on the ghost of christmas past to provide you with a definitive answer. (see, there I go with the sarcasm again)
Seriously though, I actually read what you write but you should understand that we're on an open forum so when you post something I disagree with, I'm going to call you on it. It's something I understand will happen to me too but I've made my peace with it, similarly when I do agree with you I've posted as such and vice versa so thats hardly troll like behaviour.
Thicker skin may be the order of the day...
For the sake of this particular discussion and help clarify this a bit further for anyone else like me who would not have Property Law as my specialist subject on Mastermind.
What is the intent behind the word ‘could’ in the précis version of tenancy deposit legislation?
Unless ‘could’ has been slipped in there just to pad things out a bit someone probably recognised that not all tenancies run their full length, some money could occasionally need to be handed back to the tenant and as such a tenant could reasonably expect all their money to be protected.
@Industryobserver I didn't have you down as a bloke who is so easily influenced by a troll poster with no record of opinion and therefore little credible worth.
@ bleach
No knowledge or interest in - 20+ wasted years for me then.
I'll leave others to judge at least you are consistent to the end.
Unbelievably unnecessary rudeness and arrogance. patronising and ignorant. I understand the part of iNTENT that is your intention to be unnecessarily confrontational.
I will have no part of it. For your information because I have to advise so many clients on matters I do know a little of what I do is run my thoughts, understanding and interpretation of events past others whose opinion I respect (sadly you are not in that Club but doubtless have no desire to be as well as no qwualification to) then take my position on it.
A shame you ruin an otherwise interesting thread with your unnecessary and childish personal vitriol.
Thank you that was the advice I was looking for earlier.
Having had dealings with one agent who was using unallocated cash routines to circumvent Tenancy deposit legislation I am remain unconvinced this is sensible.
As well as enabling agents to collect large quantities of unallocated cash it presents a huge challenge to anyone wishing to audit client funds and establish what exactly is going on in a suspect client account.
Tenancy deposit legislation was introduced to keep and protect deposit money safe but here is clarification that some monies, not due till months ahead in time do not need protecting in the same way.
Like everyone else I can not change or challenge case law but let's see how long it is before this is the means to a fairly big misappropriation and a subsequent amendment to legislation.
Stop being a cry baby, of course as an agent I have vested interest unlike yourself merely passing judgemental comments on a subject you clearly have no knowledge or interest in.
By your own words you confirm your ignorance and lack of credibility by insisting on waiting on others to comment as your own opinion carries no weight or substance. If you've nothing to add then best say nothing at all...
Grabbing your ball and leaving is a cop out but hey, its to be expected but before you leave with your tail between your legs,
'Er what happens if it becomes a frustrated contract, or the tenant leaves because of breach by the Landlord?
Then the rent has to be returned. As indeed does rent from the date the next tenant takes over'
WOW, what part of INTENT did you not understand????
@ if I may
Er what happens if it becomes a frustrated contract, or the tenant leaves because of breach by the Landlord?
Then the rent has to be returned. As indeed does rent from the date the next tenant takes over.
No what you are is rude and unnecessarily patronising but at least on the credit side you are consistent because you are always the same.
I can easily think of other means such as verbal statements or receipts for the money for starters, or a letter varying the terms of the agreement.
I'll discuss no more with you mainly because of your patronising and offensive manner; the comment I made about what would have happened had they decided it was a monthly tenancy was based on better informed opinion than mine but with which I agree. You are right it was not certain it would be a deposit, but in terms of the judgement and the weight lent to it being 6 monthly, that in my humble opinion is what it would have been.
Othwerwise why would the Judge who allowed the case to go to the CoA have domne so - if it was going to be deemd not a deposit either way, monthly or 6 monthly as the intent was so clear, why waste Court time and taxpayer money?
As an agent and forgive me for saying this as I know you'll jump before being scalded, but you have a more vested interest in this judgement than I do. You want rent in advance not to be a deposit, and I don't blame you for that. Makes life easier and above all avoids the risk of any penalties.
Let's just wait until the informed opinion comes out in the trade press and if it says that ALL rent in advance is not a deposit then I will be the first to acknowledge and willingly switch horses. But from comment I have seen so far as I say from far better qualified brains than ours, that is not what is going to be said.
I still say TDS is premature and their statement is too sweeping. Buy hey if I am wrong great makes no difference to me other than what I have to update and give to clients in terms of advice. Makes yours and countless other agents and Landlords lives easier, so to use the dreaded phrase, a win win situation.
At least if ALL rent in advance no matter how much, when it is paid, what dates it is intended to cover, whether you collect other rent at the same time and thus have two lots for two months during the fixed term, is all rent in advance and never a deposit no matter what the circumstances - great.
But don't hold your breath for that to be the position
My last post on this
Ok Rob, I see where your heads at. An interesting question from the outset but one I believe can be dealt with by applying the same test used in this case.
Firstly pretty much every tenancy states the tenant is responsible for the rent for the duration of that term, if the tenant were to leave early this would not change so no refund would be forthcoming. Lets assume then that your scenario exists due to a break clause.
A 12 month tenancy ends after 6 months as per break clause so, is the refund of 6 months rent a deposit?
Lets now look at the intent of the 12 months rent paid in advance, was it paid to be held as security or was it paid as rent? Clearly it was paid as rent and intended to be used as such. The fact that the tenant has left early does not detract from this.
The payment was never INTENDED to be returned to the tenant. Its important you grasp the concept here because the inclusion of a break clause does not alter this. Circumstances change and just as we cannot foresee the future we cannot therefore show an an advanced knowledge to end a tenancy early. Both landlord and tenant enter an agreement on the basis that the tenancy will run its course and therefore any rent paid in advance to cover this term is intended to be used as rent.
Your procrastination is founded on a form of retrospective determinations due to a combination of factors but this perfect storm of events does not stand up to scrutiny, especially in the wake of this ruling.
Once agin I must re-iterate that if the payment is INTENDED to be held as security then its intended to be returned and therefore a deposit. If its INTENDED to be used as rent then its not a deposit and its not returnable and this was is what this CoA decision upholds.
Well what other means are there to prescribe purpose than in the tenancy? At least your shift in perspective is a positive one but easy now, baby steps...
'the purpose or intent was always clear, what was not was whether the monthly clause would actually outweigh the 6 monthly one in which case it would have been a deposit no matter what the intent'
Oops, spoke too soon! For someone who drapes their argument in the cloak of 'only a court can decide' how can YOU categorically state 'it would have been a deposit no matter what the intent'
We were so close IO and then you revert to type, picking and choosing references and interpreting them totally out of context in order to sate a pedantic argument that satisfies the weak perspective you hold.
I'm trying to get you to see beyond the specifics and take on board the underlying principle that has been applied to this case and that affects others to come, rent in advance is not a deposit!
You seem surprised that an agent could express themselves eloquently but yes I'm an agent, only I'm on the front line not back home waving a flag.
Your turn to bear with me (again)
In this case all of the cash handed over for rent got used to pay the rent for 3 fixed term tenancies so no deposit was created by the advanced rent,
My concern is that where a tenant pays all the rent up front for a tenancy then gives notice to leave the tenancy before the full term some of the cash is due back to the tenant.
According to CLG in that case advanced rent is deemed to be a deposit. Who wants to be the agent who is tested in court on whether a deposit can be retrospectively created by early termination of a tenancy?
The mechanism for accounting for unallocated money, be it advanced rent or cash an agent can not figure out what it is or where it came from is the mechanism for wrong doing and is the means to handle large sums of unprotected money.
Why I am confused by this ruling is that in this particular case the advanced rent was not a deposit but in other cases it might be.
I mean properly prescribed in the sense of properly described in the tenancy agreement in terms of dates and figures applying. Of course I know what you mean and of course I know it is transferable stop being so effing patronising!!!
It was the lack of clear description that got Johnson as far up the lagal greasy pole as it did - the purpose or intent was always clear, what was not was whether the monthly clause would actually outweigh the 6 monthly one in which case it would have been a deposit no matter what the intent.
Bigger picture - out of curiosity and assuming you are a letting agent (though you speak like a lawyer!) how many offices do you run?
Once again I have nothing but admiration for your doggedness but you actually make my point perfectly. When the purpose of the money is not properly prescribed then you have to look at the intent. To say if the purpose is not properly prescribed then its a deposit doesn't hold true as this case has just proved. Try and see the bigger picture fella, its a process that's transferable.
Hell's Bells start again!!
On a 6 month tenancy £1000 a month £6000 paid up front make the tenancy fixed term 7 months 1.1.13 to 31.7.13.
State the £6000 covers 1.1.13 to 30.6.13
State rent is £1000 for 1.7.13 to 31.7.13
and state £1000 monthly thereafter payable 1st monthly.
Arghhhhhhh!!!
Apols 1.1.13 to 30.6.13
Dohhhhhhh!!!
@ Jackanory
I thought the meaning was obvious as stated in the judgement. Had the Judges not been satisfied that the clumsily worded agreement intended it was a 6 monthly payment period, and that therefore the 6 months payment was obviously rent, then it would have been deemed a deposit.
It seems very clear from the judgement that had they decided it was in fact a monthly tenancy then the money would have been a deposit and the tenant would have won.
@Matrix
I have no problem with tent in advance being exactly that as it was in this case. But this case has not made ALL rent in advance payments exactly that and not a contrivance to stop them being deposits and subject to the TDP regime. Which is what the first line seems to imply and TDS seem to firmly believe.
Can we be clear on all this - I have no personal axe to grind either way and couldn't care less which way any case relating to TDP goes as long as it is crystal clear and above all clarifies legislation over which there is debate.
I repeat on a 6 month tenancy £1000 a month £6000 paid up front make the tenancy 7 months 1.1.13 to 31.7.13. State the £6000 covers 1.1.13 to 30.1.13 rent is £1000 for 1.8.13 to 31.8.13 and £1000 monthly thereafter payable 1st monthly.
Anyone any problems with that - 'cos if you have you'd better lett RLA know as this is now their method.
Rob you wrote – ‘the intention of the CLG legislation that any money that could or should be returned to a tenant is a deposit’
There is no dispute here as clearly any such money is being held as security and is therefore a deposit and so would be returnable. Stay with me now because the difference between that legislation and this case is that the money was found to be rent and not a deposit so it was non-returnable.
This was money that could not or should not be returned to the tenant so why would it conflict with the CLG legislation.
We can pick the bones out of this and concentrate on out of context extracts but the underlying principles remain that rent in advance is not a deposit. You can have personal opinions on the impact valid or otherwise but it still doesn't change the fact that rent in advance is not a deposit, unless you’re IO!!!!!!
IO - ‘This case has confirmed that if you take money in advance AND DO NOT PRESCIBE ITS PURPOSE in the agreement then it is a deposit’
And we’re back in the room..
The whole essence of this case was built around the fact that the tenancy agreement was poorly worded and therefore the money in advance was not properly prescribed and yet this case was upheld! Judge Simpkiss applied a common sense test and interpretation of its intent and this has now been agreed by the CoA!. A big factor for the decision was the intent of the payment and once that was established it was applied to the law. How then do you ‘confirm’ that if it’s ‘not prescribed for its purpose’ then it’s a deposit???
Once again you quote others to bail you out of a hole so once again I’m guessing you haven’t actually read it yourself have you?
Fully awake thank you
Please re-read that paragraph, the Court of appeal has decided that rent paid in advance is not a deposit when CLG have previously said quite emphatically that it is.
I have read my way through the document and can find no reference to the judges referring to the 2007 Tenancy deposit legislation and considering the case on those grounds.
After 3 fix term tenancies the tenant ended up in arrears on a periodic tenancy which I would have thought should have been terminated by a Section 8 notice. The woman was not paying rent in advance on her periodic tenancy so I asked IO, who has a bent, for this stuff if the case law resulting from this appeal over rides the 2007 TD legislation and in essence whether the appeal Judges have got it right.
My own personal view is that rather than clarify anything they have managed to confuse two separate bits of Housing law to the detriment of one law designed to stop Agents stealing client money.
It doesn't matter; the law is as it is now. As I already said huge wads of cash can now be stuck anywhere without any protection whatsoever and the judges involved in this appeal appear not to have given that consequence any consideration.
@ Unbearable
I think you'll find they did (your third sentence) in this case and maybe you need to re-read the transcript as I have done several times.
What made the rent in advance exactly that in this case and not a deposit is that the obligation had arisen and the money was not security for any future obligation.
This case has confirmed that if you take money in advance AND DO NOT PRESCIBE ITS PURPOSE in the agreement then it is a deposit, and more to the point even if you have but then try the old dodge of starting to collect rent in month 5 or 6, those payments (or the balance then left behind from the original payment more like) become security for the Landlord in case the final payments are not made and thus become a deposit.
Better brains than mine (and I suggest yours) have already confirmed this from the judgement. You make the error of thinking these are all my interpretations, they never are.
Do as you wish, and I certainly wish all was crystal clear, sorted and nice and easy. But it isn't, not because of this case.
‘This article gives the impression that the court of appeal have said that advance rent is not a deposit, overturning the intention of the CLG legislation that any money that could or should be returned to a tenant is a deposit. Is that not the case’ Robert May
Come on Rob keep up,of course its not the case and the judge clearly explained that the money was never intended to be returned to the tenant. Read it again particularly,
'Money paid in order to discharge a current liability is not paid with the intention that it be held as security for the discharge of that liability' (IF ITS NOT HELD AS SECURITY THEN WHY WOULD IT BE RETURNED TO THE TENANT, PROBABLY BECAUSE ITS RENT)
and
‘The payer's intention is that the liability will be discharged by the payment itself; (THIS MEANS THAT THERE’S ZERO INTENTION TO RETURN THE MONEY) and so there can be no need to provide security for the discharge of the liability in the future’ (BECAUSE ITS NOT A DEPOSIT)
Seriously, the judge could not have been more clear...
@ Ray Evans
Why thrown out straight away Ray? My understanding is the CoA could just as easily have come down the other way and said it was a monthly payment period and then the tenant would have won.
The agreement source really doesn't matter.
What actually happened is that the agent made so many tweaks and changes to it in an attempt to cover every eventuality including for some bizarre reason rent being paid bi-monthly if the tenancy went periodic and the tenant passed referencing, that they were very lucky to get away with it.
Another Landlord in a case brought post Localism 2011 may not be so lucky - remember CoA cases are only binding on lower courts insofar as they are deciding identical or near identical as makes no odds cases.
@Robert May
I know exactly what you meant.
I wouldn't like to risk calling 10 months rent a holding deposit (never use the D word anyway) or anything else and this idea of it then converting later to become a deposit which is really what it was all along (security for the landlord) has to my amazement yet to be tested by a disgruntled set of students where the Landlord decided to sell in the August instead.
As and when it is I would not like to have been the Landlord's agent and be holding this money (as opposed to having run off with it).
@ Dyslexic
He'd have less complaints if they were also legally enforceable and UCT compliant!!
To TDS I repeat this is not "...a very helpful clarification of an issue which has been concerning landlords and agents" it is a CoA decision based on specific facts in a specifc case which had all sorts of weird variations unique to it.
To deem this some blanket decision that gives carte blanche to agents and Landlords to treat any money that is clearly a deposit as rent in advance and advise them it does not need to be protected when you do not know the circumatsnaces of the individual cases and whether or not the money is rent or indeed a deposit I think is rather commercially 'risky', to use a polite impersonal word.
Have you had legal opinion to support this position - doubt it given how quickly the statement was made after the judgement came out.
'May I suggest no-one comments until they have red this in full'
Have you actually read it yourself? With your history of misinterpretation and contradiction well documented, rather than rely on your limited ability to digest information, it may be advisable that your so-called 'legal experts' explain it you.
'No the CoA has not said "Rent paid in advance does NOT count as a deposit'
I think you'll find they did in defining the intent of the payment with regard to the interpretation of a deposit. Its a simple test that can be applied to any payment deemed rent in advance and is not isolated to this particular case. Once again, its your complete failure to understand information that has you misinformed.
The ruling said,
'It is important to have in mind the distinction between money paid to discharge an existing obligation and money paid with the intent that it be held as security for the performance of some other (primary) obligation or as security for the discharge of some other (primary) liability'
'Money paid in order to discharge a current liability is not paid with the intention that it be held as security for the discharge of that liability'
As I said, this is a test that can be applied to any case. To comprehend that several laws are being applied into a common sense test for this case and indeed any other is beyond you and we should therefore attach zero relevance to your comments.
The ruling even went as far as to say that no part of the money was a deposit even in your fabled distinction of arising 'under' or 'in connection' with the tenancy.
You've consistently shown little understanding of the legislation or its application and you've consistently misrepresented information. It’s a realization that at every stage, your arguments have been defeated culminating in ta CoA judgment; come on fella if it looks like a duck, quacks like a duck…
As a tangent; Why do the legal profession continue to use Times Roman as a font?
Serif fonts might look nice but add an additional complexity to reading heavy content. Sans (non)-serif fonts [ eg Arial, Verdana] ought to be the law for any legal documents especially Tenancy Agreements when readers of all abilities are expected to read and understand the content. Un-justified text helps too.
The ombudsmen might have a few less complaints if tenancy documents were properly legible, read and understood.
I was referring to the cash for the 2013 -2014 year as it commences and not money paid over to secure the following years' tenancy. At or about the start of the tenancy any holding deposit will become the actual deposit and rent in advance so instead of just having 10 months rent available to them there is deposit too and a 14 day window to get make off with the lot.
I wrote the non-tech spec for the unallocated cash routine in CFPwinMan back in 1999 to stop these huge wads of cash from slopping about in Client accounts (and in one case in Brighton, a drawer) so understand the quantity of cash it could potentially handle.
This article gives the impression that the court of appeal have said that advance rent is not a deposit, overturning the intention of the CLG legislation that any money that could or should be returned to a tenant is a deposit. Is that not the case?
If you have read and understood the ruling; Is it legal for an agent to take all 6 months/ 10 months rent from the tenant in one go and drip feed it to the landlord month by month?
Legally collecting all of the rent for the whole period of all tenancies at one point of time is an opportunity some will not pass up.
Legal Aid eh! What a nonsense this was.
The whole thing should have been thrown out right at the beginning by the Judge because the Agreement was faulty.
Lets have the full facts, for instance who provided the Agreement?
http://www.bailii.org/ew/cases/EWCA/Civ/2013/415.html
May I suggest no-one comments until they have red this in full.
@Robert
1. Actually "does" may be right if you are the crooked
agent!!
2. I doubt a Court would regard 10 months paid in
October 2013 for a tenancy not starting until
September 2014 as anything other than a deposit no
matter what anyone or any bit of paper stated.
3. Only way might be a completed agreement with
execution date completed but even then I doubt it
@Rebel
It is a deposit - the Johnson judgement in effect says this that's why averyone and especially TDS need to read it. The TDS statement is wrong and dangerously so to the point of irresponsibility, as Robert flags up.
The RLA now has a perfectly good way of dealing with it, but stops it rolling forward.
So...what if the landlord takes rent on a rolling '2 month in advance' basis (to protect against moonlight flits)?
The RLA used to recommend this method, then pulled it.
Should read "does not"
All I can think is whoops!
The tenancy deposit scheme was intended to ring fence protect large chunks of cash that make misappropriation of funds worthwhile.
I am sure the legal aspect of this case is probably correct but with all respect to the Court they have not understood the implications of this ruling: The court of appeal has just handed deliberately crooked agents the keys to the Safe. Not just a safe with one and a half times the monthly rent role in it but one containing as much as 6.6 times the traditional deposit fund.
If someone does look into this quickly, October is going to be the month of choice when unscrupulous rogue agents abscond with worthwhile wads of unallocated client cash.
A typical agent with 300 student tenants with an average rent of £700 per month will receive about £2,100,000 in advance rent for the 10 months of a typical student tenancy. That rent can legally go, unprotected in any way, into the client account of those that have them but otherwise directly into whatever account the un-affiliated Agent chooses. For comparison between £300,000 and £400,000 has been the typical figure to entice Agents into crookery.
Whose job is it to appeal against this ruling? I can’t see anyone wanting to underwrite a CMP scheme on the strength of this and the massively increased risk it creates. This victory is great for those few who have won the appeal but it creates a nightmare for those wanting contain rogue agents.
Stick me in the tower for contempt but this is just a bit short sighted.
No the CoA has not said "Rent paid in advance does NOT count as a deposit" it has said that in cases where the obligation is to pay rent 6 monthly then such payments are not deposits - of course they are not and never were.
Johnson has clarified that, and contrary to the TDS view HAS NOT said that rent taken in advance is not a deposit. In fact in the judgement they say quite the reverse for example if, as is often the practice, rent is taken in advance and then rent payments are demanded monthly from month 4 or 5.
Common practice so the LL is always carrying forward a nice little bit of extra security for future obligations. A deposit according to the 2004 Act and also, clearly, in the Johnson decision.
On standard monthly tenancies where rent is taken in advance it must be specified what period of the tenancy that rent pays for - otherwise it remains a deposit. To proceed otherwise is to continue to accept risk of an offence
Well done the Court of Appeal. This is nothing more than a 'try on' by this woman, funded by the taxpayer. She should instead be facing a large legal bill! For once, common sense applies.