Advanced rent and refunding it

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  • HantsAgent
    started a topic Advanced rent and refunding it

    Advanced rent and refunding it

    Scenario;

    I've moved a young lady into a flat who is/will be claiming universal credit. She has a guarantor, but she also offered (we didn't request) to pay 4 months rent in advance because, in her words, "Universal Credit is a nightmare and will take ages to sort out"

    Fine, I wasn't going to argue, so in addition to the first months' rent and 5 week deposit we'd usually take, she has also paid a further three months' rent in advance. We have been careful to state that these are advance rental payments and not additional deposit.

    She's barely moved into the flat and has suffered a family emergency which means she needs to move back to where she came from. She understands that her AST cannot be broken without the landlords' agreement and that she is liable for the rent and other obligations until the end of the 6 month fixed term.

    Because she's a good person, and because it's the practical thing to do, I have offered (with the landlords' consent) to find a suitable replacement tenant and to release her from her obligations once a new tenancy is signed. We will then refund whatever balance of over-payment and deposit remains.

    My question, is whether or not I will be obliged to repay her now any of that advanced rent if she requests that I do so. Legally, it's not due yet, so it remains her money, right?

    She hasn't asked yet, but I'm expecting it's coming.

  • KTC
    replied
    There was a tenancy, so the liability existed when the money was paid by the tenant, it was just discharged a little bit earlier than necessary. The money was paid to discharge that future liability. Instead of thinking that money was rent, that money was electricity etc., they're all just a sum of money. The money which used to belong to A, was paid from A to B to discharge a liability. Once that's done, it's just B's money. If A and B then make a new agreement whereby B will pay over a sum of money to A, even with reference to the earlier payment, it's still a new agreement that don't change what happened earlier.

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  • jpkeates
    replied
    Originally posted by KTC View Post
    I disagree that it has become (or ever was) a deposit. When it was paid, it was from the description clearly an advanced prepayment of rent. So, she had this liability to pay the rent for, she paid over this amount of money to discharge that liability. The money is not being held as security for any future possible liability, it have actually be used to discharge an existing rental payment liability. Then, her circumstances changed and she wished to determine the tenancy. The landlord and tenant then come to an agreement on the terms of the early termination, which include "refunding" unused prepayment of rent for period after the tenancy ends.
    The issue (which I concede is somewhat academic) is that the money was clearly rent when it was paid - it was paid in advance of being due, but it was still rent.
    When the tenant's circumstances changed, nothing changed about the money, it remained rent.

    When the landlord and tenant agreed that there was now the possibility that the rent may or may not be due (unknown and indeterminable at this point), it isn't rent any longer, because the rent for any given future month may not be due.
    If it's not definitely rent, it's just a sum of money.

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  • jpkeates
    replied
    Originally posted by KTC View Post
    Err, there's no uncertainity when it's the last month of a fixed term tenancy.
    I agree with that.

    However, every instance I have personally seen doesn't specify the actual month (as the last month of the fixed term or otherwise) other than as the last month(s) or the last month(s) of the tenancy.
    It's only used to try and swerve the deposit regulations.

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  • KTC
    replied
    Originally posted by jpkeates View Post
    It's fairly well established that a sum of money held by the landlord or agent as advance payment of the last month's rent is actually a deposit, because the "last month's rent" isn't an actual month, so there's a lack of certainty, which is where my concern arises.
    Err, there's no uncertainity when it's the last month of a fixed term tenancy.

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  • KTC
    replied
    I disagree that it has become (or ever was) a deposit. When it was paid, it was from the description clearly an advanced prepayment of rent. So, she had this liability to pay the rent for, she paid over this amount of money to discharge that liability. The money is not being held as security for any future possible liability, it have actually be used to discharge an existing rental payment liability. Then, her circumstances changed and she wished to determine the tenancy. The landlord and tenant then come to an agreement on the terms of the early termination, which include "refunding" unused prepayment of rent for period after the tenancy ends. The landlord were not obliged to agree early termination, or apportion the rent and pay over "unused" portion unless the tenancy clearly expressed otherwise(Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd), so everything is down to the terms of this agreement for early termination.

    Basically, the word "refund" or "repay" are not actually appropriate. It's no longer the tenant's money. The landlord have simply agree to pay over an amount of money per whatever terms agreed in this new agreement.

    While we're here, this agreement for early termination of yours was "in writing and incorporated all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each" right?

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  • MdeB
    replied
    Originally posted by jpkeates View Post
    It's fairly well established that a sum of money held by the landlord or agent as advance payment of the last month's rent is actually a deposit, becaus
    Do you have a reference for this, please?

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  • MdeB
    replied
    Does this not come under Schedule 1 (permitted payments) paragraph 7 (Payment on termination of a tenancy)?

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  • jpkeates
    replied
    Still adjusting to the tenant's fees changes (forgot the 5 weeks limit entirely).

    Which makes it more of a problem.
    " “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."

    Given that it's possibly going to be refunded, I don't think the money is now rent - it's Schrodinger's rent, when it's due it's rent and before then it's not.

    It's fairly well established that a sum of money held by the landlord or agent as advance payment of the last month's rent is actually a deposit, because the "last month's rent" isn't an actual month, so there's a lack of certainty, which is where my concern arises.

    In reality, I can't imagine there would be any practical issue arising, the tenant will probably be glad to get something back and it will simply go away.

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  • HantsAgent
    replied
    Hmmm, interesting, thank you. The trouble with protecting it is that we already have the maximum 5 weeks' rent protected as a deposit. So I can't protect any further funds.

    I feel sorry for the girl, I really do, and I'm not planning to charge her anything for the early termination.

    But my obligation is obviously to my landlord client and at the moment I have a nice 3-4 month buffer in which to find a new tenant without him being out of pocket.

    I'm going to just try to replace her as quickly as possible and hope that we can get her most of the money back as a result.

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  • jpkeates
    replied
    It's an advance payment of rent, so it would normally be the landlord's money.

    If it was her money it would be a deposit, which would need protecting.

    As the landlord has agreed to refund the money if a condition is met, there is now uncertainty about whether the rent payment will be necessary, I think it has "become" a deposit and needs protecting.
    I'd insure it, just to be certain.

    For what it's worth, given that the tenant is on benefits, I'd have simply accepted the situation and given her the money back.
    But I am, obviously, a soft touch.

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