Rent in advance not a deposit: Court of Appeal

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The Court of Appeal in their latest judgement has confirmed that rent paid in advance is not a deposit.

Steve Harriott, CEO, TDSThis was the case of Johnson vs Old which was decided in the Court of Appeal on 7 March 2013 with the decision published on 23 April 2013 (see [2013] EWCA Civ 415). The Court of Appeal was dealing with an appeal on an order made by the Brighton County Court where a tenant claimed that the fact she had paid 6 months’ rent in advance as required by the tenancy agreement meant that this should be treated as a tenancy deposit. The importance here was that had this been accepted by the Court of Appeal then the s21 notice to end the tenancy would have been invalidated as the deposit would not have been protected.

In an initial hearing the Deputy District Judge had accepted the tenant’s view that when rent payments were made six monthly in advance that at the point that those payments were made five months was actually a security deposit. As such it should have been protected and as it had not been then the s21 notice was declared invalid.

On appeal the County Court Judge took a different view and considered that rent in advance could not be construed as a deposit. In fact it had been paid to comply with a primary obligation of the tenancy to pay the rent. As such he overturned the decision of the Deputy District Judge.

On appeal to the Court of Appeal the tenant, Anne Old, attempted to argue that the judge was wrong in three areas:

In holding that the tenancy agreement required the payment of 6 months’ rent in advance;

In concluding that the payment of six months’ rent was not a payment of five months as “security”

In concluding that the five months’ rent was not a tenancy deposit.

In this case the tenant had also paid a security deposit and this had been properly protected with DPS.

The Court of Appeal concluded that the tenancy agreement did indeed require that the first six months’ rent should be paid in advance and this appeal on the first ground was dismissed. In relation to the second ground the Court of Appeal made a distinction between money paid to discharge an existing obligation of the tenancy (such as to pay the rent) and money paid with the intention that it be held as security for the performance of some other obligation or as security for the discharge of some other liability. The Court said that “money paid in order to discharge a current liability is not paid with the intention that it be held as a security for the discharge of that liability”.

In this case the Court did not consider that the rent paid in advance was somehow being paid with the intention that it be held as security for the discharge of a liability.

So in conclusion the Court of Appeal decided that the rent paid in advance could not be construed as a tenancy deposit and therefore the s21 notice was valid.

Conclusion

This is a very helpful clarification of an issue which has been concerning landlords and lettings agents. The judgment in this Court of Appeal case should assist those landlords and lettings 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.

Steve Harriott

Chief Executive of the Tenancy Deposit Scheme

A full transcript of the case and the TDS response can be downloaded here:

 

 


Posted by Steve Harriott, CEO on 24 April 2013

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