Is rent in advance a deposit? An update on Johnson vs Old

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Mike MorganFollowers of Tessa Shepperson’s Landlord-Law Blog will have read her very useful article giving an update on the case of Johnson vs. Old, which has been the cause of some concern amongst landlords over the past few months. The case raised questions over what might constitute a tenancy deposit in the eyes of the law, after six months’ rent in advance was considered by the judge as a tenancy deposit and therefore money which should have been protected by one of the schemes. A separate sum was taken as a deposit and properly protected. (See Tessa’s blog for more details)

This decision has now been overturned at appeal, and the advanced rent judged not to be a tenancy deposit. Possession and costs have been awarded to the landlord.

The result of the appeal is reassuring. The reasoning behind the original judgement was not entirely clear and key characteristics of a deposit have been reaffirmed by the court.

A deposit is money held as security against a tenant’s obligations in connection with the tenancy and at the appeal the rent paid in advance was viewed as just that – rent.  Paying the rent in advance was meeting an obligation of the tenancy in itself, and was not the payment of a security against it. It was clear to both parties from the outset that there was no intention for that money to be returned to the tenant, so it could not be viewed as a refundable deposit.  The position is of course different if the intention is for the money to be returned less costs for where the tenant has failed to meet their obligations.

As we have previously written on this blog, rent in advance is unlikely to fall under the statutory definition of a deposit, and the latest judgement in Johnson vs. Old reiterates this. Some landlords have tried to avoid deposit protection by labelling money received as rent in advance rather than as a deposit.  The acid  test remains the purpose for which the money is taken, not what it is labelled.  Deposit protection exists to protect tenants against misuse of or unfair deductions from their deposits, so if there is never any intention for the money to be refunded, what is it being protected from? Viewing payments from tenants in terms of their purpose rather than how they are labelled will help keep you within the law.  As the old saying goes “if it looks like a dog, and it barks like a dog…”

 


Posted by Michael Morgan, Head of Adjudication on 31 August 2012

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