Contents
Introduction
An important question relating to 6 months rent paid in advance, tenancy deposit schemes, and service of a section 21 notice has been answered today by the Court of Appeal in the case Johnson & Ors v Old [2013] EWCA Civ 415
Outline
Through their agent, the landlords granted an assured shorthold tenancy to Mrs Anne Old for a flat from 1 May 2009 for a term of 6 months to 31 October 2009. The rent was £950 per calendar month payable in advance but the agreement also contained a clause that the first six months’ rent were to be paid in advance. The agreement also required payment of a deposit of £1,425.
In March 2009, before taking possession, Mrs Old had paid to the landlords’ agents (i) a “holding deposit” of £300 and a non-refundable administration fee of £115 and (ii) £950 in respect of the first month’s rent. On 22 April 2009 the agents requested payment of “the deposit – £1425.00 and the remaining five months’ rent @ £950 – £4,750”: that is to say, payment of £6,175 in aggregate. Mrs Old pointed out that she had already paid the holding deposit of £300; and, after taking credit for that sum, she made a further payment of £5,875 on 29 April 2009. It was common ground that the agents paid the sum of £1,425 into a deposit protection scheme.
The landlord and tenant (via the agent) entered into a new tenancy agreement of the flat on 1 November 2009 for a further six month fixed term. The terms in that agreement as to rent, payment of six months’ rent in advance and payment of deposit were the same as in the previous agreement. On 27 October 2009 Mrs Old had paid a further £5,700 representing 6 months rent in advance to the landlords’ agents.
A further tenancy agreement was entered into on 1 May 2010 for another six month term. The rent under that agreement was increased to £1,000 per calendar month; and that agreement, also, contained the requirement for payment of a deposit of £1,425. Just like the earlier agreements, this one contained a clause providing for the rent to be paid calendar monthly but also, in relation to the the rent in advance, clause 1.7.8 of this final agreement provided “The first six months rent are to be paid in advance (£[6,000]) …”. On 29 April 2010 Mrs Old paid £6,000.
After expiry of this tenancy agreement on 31 October 2010, no further agreements were entered into and the tenancy continued as a statutory periodic tenancy by virtue of section 5 Housing Act 1988.
Payments of rent started to be missed and by March 2011 the tenant became in arrears with the rent. A notice under section 21 Housing Act 1988 was served on 15 August 2011 seeking possession on 31 October 2011.
Possession proceedings
Possession proceedings were commenced on 16 November 2011 which came before Deputy District Judge Collins, sitting in the Brighton County Court, on 20 January 2012. He dismissed the claim for possession on the grounds that the equivalent of 5 months rent paid had in fact been a deposit which hadn’t been protected thus rendering the section 21 notice invalid. The landlords appealed to the County Court Judge. That appeal came before His Honour Judge Simpkiss on 31 July 2012. He allowed the appeal, set aside the order of the Deputy District Judge and ordered that Mrs Old give possession of the flat on or before 11 September 2012 (see our note on these previous hearings here). Mrs Old appealed that order to the Court of Appeal after permission was granted by Lord Justice Lewison on 15 October 2012.
Definition of tenancy deposit
“tenancy deposit”, in relation to a shorthold tenancy, means any money intended to be held (by the landlord or otherwise) as security for—
(a) the performance of any obligations of the tenant, or
(b) the discharge of any liability of his,
arising under or in connection with the tenancy.
[section 212(8) Housing Act 2004]
If the “rent in advance” paid by the tenant to the landlord in this case is a tenancy deposit, then, no section 21 notice may be served at a time when the deposit was not protected:
(1)If a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when—
(a) the deposit is not being held in accordance with an authorised scheme, or
(b) the initial requirements of such a scheme (see section 213(4)) have not been complied with in relation to the deposit.
(As section 215(1) Housing Act 2004 was written before the Localism Act changes.)
The decision
The tenant contended that the decision of the appeal (ordering possession against the tenant) was wrong on three counts:
(1) It was denied that the relevant tenancy agreement required the tenant to pay six months’ rent in advance; (authors note: the clause requiring 6 months rent in advance wasn’t particularly well drafted which is why the tenant queried the requirement).
(2) Assuming the rent was in fact payable calendar monthly, payment of the 6 months rent money at the beginning was therefore one months rent in advance and the equivalent of 5 months was paid as security for the future rental payments and was therefore a deposit and not rent.
(3) It would follow If the above were held, that the section 21 notice could not have been served and therefore possession could not be ordered.
The Court of Appeal held that when all the clauses were read together, clause 1.7.8 (the clause requiring 6 months rent in advance) did have the effect of requiring six months rent in advance in this particular case. No part of the £6,000 paid on 29 April 2010 was paid as security for the performance of an obligation, but was payment of the obligation itself.
… 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. The payer’s intention is that the liability will be discharged by the payment itself; and so there can be no need to provide security for the discharge of the liability in the future.
… The point can be tested by asking, rhetorically, how the tenant would have responded to a demand, on 1 September 2010, for rent in respect of the month of September 2010. It is, I think, impossible to avoid the conclusion that her answer would have been: “why are you asking me for rent which I have already paid?”. And, if it had been suggested to her that she would be liable for interest at 6% per annum on rent for the month of September 2010 if she did not meet that demand by payment of £1,000 forthwith, her answer might have been expressed in stronger terms of indignation.
Final comment
It’s clear in this case that the requirement of the tenancy agreement for six months rent in advance was very helpful for the landlords. The judgment seems to suggest that it is the purpose of the payment that matters (not necessarily that such a clause exists) but even with this decision, Guild members would be well advised to continue to use our replacement rent in advance pages which we introduced in 2007 when the deposit scheme legislation was introduced. These replacement pages make it a requirement of the tenancy to pay “x” number of months rent in advance like was the requirement of the tenancy in this case.
We had hoped that after such a decision, we could do away with these replacement pages but as this decision was largely based upon the fact that such a clause existed, it’s better to continue to be safe.
What is the notice period for a S21 when rent is taken every 6 months in advance for a monthly tenancy? Two months or 12 months?
As long as the rent is calendar monthly, the notice required would be 2 months. If however, the tenancy wasn’t worded properly and the rent was 6 monthly (not just the first 6 months to be paid in advance) then at least 6 months notice would be required.
Many thanks
Guild of Residential Landlords
Adrian, its Darrel, from the bailli transcript it appears that the SPT periods would be 6 months?? so therefore the section 21 (4) (a) was surely invalid?
Hello
I don’t think that is right. Para 15 of the judgment describes the May 2010 agreement (the last agreement) as having the following clauses:
If we want to get really complicated, clause 1.7.8 provided that after the fixed term the rental payments would in fact be two monthly for the duration of the [statutory periodic] tenancy but then clause 1.7.9 said that DIDN’T apply if successful credit checks were completed at the end of the six months. In which case, according to the Court, the rental periods reverted back to clause 1.7.4 (rent payable on first day of every month).
At no point does the tenancy provide that the rent is payable “6 monthly” simply that the “first” six months rent be paid in advance but no more than the first six months. (Which explains why they kept renewing the tenancy agreement in order to keep getting the six month payments).
Many thanks
Guild of Residential Landlords
A solicitor has advised a friend to never take 6 months advance rent but take 5 months advance and set up an SO for the last month – what is the rationale behind this? Is it for fear of creating a tenancy with a 6 month period or ignorance of the recent ruling?
You can safely take the full 6 months rent if you want. The Court of Appeal has recently issued judgement in such a situation and provided the tenancy says the rent for the whole 6 months is due at the start you should be fine. The recommended wording would be (for at £1000 a month rent) the rent for the first 6 months will be £6,000 due on the (commencement day).
Hello
I wonder if this has become slightly confused with the length of the fixed term rather than the amount to take in advance?
As David says, you can take six months rent in advance (or any other amount for that matter) as long as it is properly stated in the tenancy agreement (using wording suggested by David above).
However, we would recommend if taking 6 months in advance creating the tenancy for “7” months rather than six. This would ensure (as you hint at) that the tenancy doesn’t become a six monthly periodic tenancy which in certain cases it could do. By having a further month at a monthly rent, this potential problem would be avoided.
As long as you use our rent in advance replacement front pages which has all this information, you will be fine taking rent in advance for any amount.
Many thanks
Guild of Residential Landlords
Thank you David & Guildy – Assuming this is not an advance payment=deposit issue I think the answer will lie in the definition of a statutory periodic tenancy in s.5 of HA 1988 which states that the period of a statutory periodic tenancy is ‘the same as those for which rent was last payable under the fixed term tenancy’.
So if you award a 6 month fixed term and take 5 months advance rent + the final month separate then if the tenancy rolls over, the last period under the fixed term was one month. Likewise if you grant a 7 month fixed term and take 6 months advance rent + the final month separate when the tenancy rolls over to become a statutory periodic tenancy, again as above, the last period of the fixed term was one month.
The + side of going for the 5+1 option is that you can get possession quicker should you decide to rather than go for a 6+1 option which will give you more rent up-front and security of tenure but you are having to wait longer to get possession if for some reason you needed to. Hope that makes sense 🙂
Hello
You have understood the reasoning perfectly.
Many thanks
Guild of Residential Landlords
Thanks for making a quite confusing subject easier to follow – very useful article!
I am a bit confused about all this rent in advance / deposit issue. The reason is that my landlord took two months rent in advance at the start of my tenancy and no deposit. However, I have been paying monthly rent after the first month of living in the property which means he has one month’s rent in hand. I have now given him one month’s notice to move out with the view that the one month rent in hand will cover this period but he states the one month’s rent in hand can only be returned at the end of my tenancy or shortly after moving out. I am thinking the month in hand rent should be seen as deposit so that he should have secured it in a deposit scheme as I believe it’s a way of going round the deposit scheme requirement. Would I be wrong to say this?
There has not been any significant court cases on this. Clearly the demand for another months rent when he claims to have one month in hand gives you a good case to argue. In the Johnson v Old case the situation was different as the rent demanded was for a continuous period of rent. Your situation is not the same. The judge in Johnson v Old said judges should be aware of landlord writing conniving wording in agreements trying to avoid deposit legislation.
If you decide not to pay the last months rent (as the landlord already has the rent) I think the landlord would not be wise to try and take court action on that basis.
I am a tenant and I paid to a Agency a Security Deposit of 6 weeks and an Advance Rental Payment of 5 months ( 6250,00) Plus 1250,00 Agreed Rent. After one month they require a monthly rent.Do I have to pay or I already pay for 5 months when I paid the Advance Payment of 5 months?
It sounds to me like you’ve already paid for the next 5 months.
Hi. I wonder if I might have some help. We have a newish tenant (moved in June 2015) who has asked today if he can pay 5 months rent in advance. Are there any loop holes we need to be aware of and should we add this into his tenancy agreement?
Hello
As can be seen from this case, it is in theory possible that rent in advance could be regarded as a deposit. The landlord was successful in this case because the tenancy agreement was correctly set up.
We provide a replacement front page for all our tenancy agreements where rent in advance can be taken and it will not be held to be a deposit following this case.
Many thanks
GRL
We have paid 6 months advance rent now the landlord was another 6 months by Monday so a week from now is this correct?
Hi, I gave £1700 deposit and then paid 6months rent in advance totalling £7000 advance rent however me and my girlfriend went away for the weekend and gave the keys to my friend to look after he was using the house to store drugs criminal activity by the time we came back we found out had no clue now he is doing his time in jail but my self the tenant did not get to hear anything back from the landlord no belongings were given back to us and the total stay was less than 3 weeks that we got to stay , the agreements a shorter for 6 months but it was monthly payments not in advance payed in advance , now i just got in contact with the landlord and she is saying the estate agents have kept all our belongings which is a lie i spoke to the estate agents they have no clue about it,also she said the deposit apparently the estate agents are saying she had it but she promised me she hasn’t so i double checked with the estate agent and now they saying its with them securest need landlords confirmation to release it.. the landlord i explained to her to send confirmation she said she would only if i understand that i cannot claim any rent back from her through the agent then she will release my deposit i felt that if i don’t make her believe that i won’t claim it back then i won’t get my deposit so, i wrote it to her and then she said she is going to speak to her barrister and serif she can do anything else tome so she’s certain i can’t claim any rent that was given to her in advance , she also said that she can claim against me for seeking legal advice from when the police were questioning her. i want to know i i can get my 6weeks rent in advance back and also my deposit swell as my belongings, what’s happened is very unfair and injustice.
I have rented a property now for 2 years paying a fee and signing every 6 months, I’m due to renew and asked the letting agency if I can pay monthly as repairs are not being done and I don’t want to keep handing over large sums of money , the letting agency have said I can’t pay monthly as the landlord prefers 6 months up front.. I gave been a good tenant and can’t see why I can’t pay monthly ..