2 months' rent in advance instead of deposit - legal?

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    2 months' rent in advance instead of deposit - legal?

    This is with the next month's rent due in 1 month, i.e. always 1 month's rent is in hand.

    I thought that this would be considered a deposit, but this site thinks differently --

    http://www.riky.co.uk/more_info.asp?current_id=509

    I would be grateful for any comments on this.

    JS

    #2
    It's rubbish. Anything other than the rent lawfully due (ususally rent is payable 1 month in advance) is a deposit. Therefore if only one month's rent is lawfully due and a landlord or letting agent takes two months, then ergo, the second month's money is a deposit.

    Comment


      #3
      There is an argument that if it is actually rent and can only be used for rent, then it is not a deposit. As soon as it is tied in with any other contract obligations, then it is in effect A DEPOSIT. Is this a good argument??
      ASSUME NOTHING - QUESTION EVERYTHING!

      Comment


        #4
        I wouldn't have thought so Paragon.

        If the contract says rent payable monthly in advance then if the tenant pays up 2 months, effectively, what are they going to pay you at the start of month two?

        If I were the tenant I would be saying, well you have a month in hand so use that.

        The landlord then immediately loses the advantage of having a "deposit".

        Any money other than rent lawfully due will be deemed a deposit.

        The courts aren't that stupid.

        Comment


          #5
          I'm going to stick my head up here and state that yes I do, do this.

          However, I only ever do this with a protected bond as well, never instead of protecting the bond.

          Even if it was OK to do this instead of bond, as someone else mentioned, you are only dealing with the problem of rent arrears.

          Not that it counts as legal advice, both referencing companies that I use recommend this method in-leui of a gurantor.

          In answer to what happens in month 2; the tenant would have effectively have paid the first and last months rent so they wouldn't be able to use it in month 2, although I did raise another question in a thread regarding what would happen if they didn't pay the 2nd months rent, and how the s8 procedure would work.

          Just to make it crystal clear, I do not support the use of this where there is no protected bond.

          I am interested in peoples thoughts too!

          Kind regards,

          John

          Comment


            #6
            I've just read the article, and I'm going to stick my head up even further and back it up!

            They aren't suggesting that you keep the second months deposit as security until the end of the deposit, and they do list the negatives of doing this. However, the article to me is misleading as it almost makes out that they have discovered a brilliant loophole, where as infact you are just risking an awful lot more than you are gaining.

            My thoughts are, if you don't want to protect a deposit then you shouldn't take one.

            Kind regards,

            John

            Comment


              #7
              Originally posted by attilathelandlord View Post
              I wouldn't have thought so Paragon.

              If the contract says rent payable monthly in advance then if the tenant pays up 2 months, effectively, what are they going to pay you at the start of month two?

              If I were the tenant I would be saying, well you have a month in hand so use that.

              The landlord then immediately loses the advantage of having a "deposit".

              Any money other than rent lawfully due will be deemed a deposit.

              The courts aren't that stupid.
              That was what I was saying - it is a pointless exercise to take two months rent in advance because it can't be used for anything other than rent.
              ASSUME NOTHING - QUESTION EVERYTHING!

              Comment


                #8
                There is no loophole.

                The last month's rent is not due therefore cannot be asked for.

                That is what I mean about lawfully due. Only the particular month you are dealing with is lawfully due.

                You can't ask for May's rent in Jan for example, so it falls down at the first hurdle.

                I know agents think they have found some great way round it but not so I'm afraid!

                So yes Paragon you are right that it can only be used as rent, but since you can only take one month's rent at a time, then any excess is deposit.

                Comment


                  #9
                  Yes some LA's/LL's think they have found a great way around the TDS, which is obviously not the case.

                  However, I am interested in your comments regarding asking for rent in advance.

                  Whilst I am not disagreeing I would be interested to see where this information is from as I would like to have a read through it.

                  Whilst I would certainly agree that it couldn't be demanded mid term, but what about before an AST is signed/commences?

                  Kind regards,

                  John

                  Comment


                    #10
                    Originally posted by attilathelandlord View Post
                    There is no loophole.

                    The last month's rent is not due therefore cannot be asked for.

                    That is what I mean about lawfully due. Only the particular month you are dealing with is lawfully due.

                    You can't ask for May's rent in Jan for example, so it falls down at the first hurdle.

                    I know agents think they have found some great way round it but not so I'm afraid!

                    So yes Paragon you are right that it can only be used as rent, but since you can only take one month's rent at a time, then any excess is deposit.
                    Alternative solution?
                    1. Assume market rent figure of £13 200 p.a., on AST letting for one year.
                    2. Normal: set rent at £1100 p.m.
                    3. Alternative: set rent at £1200 p.m., and state explicitly (in AST) that final month is rent-free.
                    4. Take deposit of £1200, if deposit is essential.
                    5. T therefore knows that set rent equates to no more than market rent figure.
                    6. Does this not avoid:
                    a. the need for > one month's rent deposit; and
                    b. the perennial problem of T not paying final month's rent in hope that L will accept deposit in payment?
                    JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                    1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                    2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                    3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                    4. *- Contact info: click on my name (blue-highlight link).

                    Comment


                      #11
                      Nice one Jeffrey, but if you give the last months rent free (payment free actually not rent free - God I sound like Agent46) then if you get a funny tenant they will simply not pay you the penultimate month instead!

                      Simplest just to protect the deposit methinks!

                      Comment


                        #12
                        Originally posted by jeffrey View Post
                        Alternative solution?
                        1. Assume market rent figure of £13 200 p.a., on AST letting for one year.
                        2. Normal: set rent at £1100 p.m.
                        3. Alternative: set rent at £1200 p.m., and state explicitly (in AST) that final month is rent-free.
                        4. Take deposit of £1200, if deposit is essential.
                        5. T therefore knows that set rent equates to no more than market rent figure.
                        6. Does this not avoid:
                        a. the need for > one month's rent deposit; and
                        b. the perennial problem of T not paying final month's rent in hope that L will accept deposit in payment?
                        I'm sure your logic stands up to scrutiny, but it would make it hard to market as the property would appear to be more expensive than all similar properties.

                        Comment

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