Is advance rent a deposit?
Rent in Advance: If I take rent in advance, say six months’ rent, will this be classed as a deposit, and will I then need to protect it in the Deposit Protection Scheme?
The question of whether advance rent payments is a deposit was the subject of a court case and an appeal court ruling on the matter. It was eventually ruled by the English courts that advance rent is not a deposit.
The appeal court clarified the question: rent paid in advance is not a deposit, and landlords or letting agents do not need to protect it.
The ruling in the Court of Appeal in the case Johnson & Ors v Old  EWCA Civ 415, judges agreed that the first judge hearing the case had made a mistake, dismissing a landlord’s claim for possessing a buy to let home by designating rent paid in advance as a deposit.
This issue is important for many landlords and letting agents, especially when they take six or 12 months of rent in advance from tenants who may be coming from abroad with no credit history in the UK, and when they have blemished credit histories.
In this case the tenant claimed compensation from the landlord as her advance rent was not placed in a tenancy deposit scheme within the timescale laid down by law – since April 2012 it is 30 days.
The judge at a county court level in Brighton dismissed the landlord’s section 21 notice on the grounds the landlord had not protected all the payments that Old had made at the start of her tenancy.
The case went to appeal at the lower court. Here the judge set aside the ruling and ordered Old to vacate the flat.
She then took the case to the Appeal Court, where the previous ruling was upheld.
The appeal court judge made the following comments:
“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,” said the ruling.
“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.”
Rent in Advance, Advance Rent Payments
By Tom Entwistle,
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©LandlordZONE All Rights Reserved – never rely totally on these general guidelines which apply primarily to England and Wales. They are not definitive statements of the law. Before taking action or not, always do your own research and/or seek professional advice with the full facts of your case and all documents to hand.