Definition of "Deposit"

[adamr]

Hi All,

I'm (a landlord) using the RLA tenancy agreement. On the first page it says

Tick the box to show that you agree to us collecting two rent payments in advance at the start of the tenancy. One is for the first rent period and the other is a payment for the next rent period. You must then make each following payment one calendar month (or as shown above) before the start of the rental period to which the payment relates. Paragraph D8 on page 4 of this agreement will apply.

Paragraph D8 is:

We [the landlord] agree to do the following: ... Refund any rent you have paid which relates to a rental period which starts after the tenancy ends. We are allowed to take from this refund any rent or other money you owe us

Does this last line mean the month-in-advance payment is really a deposit? There is a separate section on the agreement which deals explicitly with a deposit, which I have set at 1.5x a months rent. So what is the total deposit? In particular:

• What amount should I register with the deposit scheme?
• I've read elsewhere on this forum that it's a mistake to take more than 2 month's deposit. Is that the case here?

Thanks a lot,
Adam

[PaulF]

It appears to be asking for 2 months rent in advance and not connected to a dilapidations deposit. If you're confused then your tenant might find it even more difficult to understand. Ask the RLA for an interpretation.

More than 2 months rent as a deposit can be deemed a premium lease, i,e, you are paying the landlord a sum for the privilege of living in the property.

[Lawcruncher]

The way it is phrased it comes over as a deposit. If you are going to do the two months in advance thing you need to provide that no rent is payable for the last month of the fixed term. I think it is a bit of a nonsense to have an agreement that provides for the tenant to pay rent for a period after the tenancy has come to an end.

[Lawcruncher]

More than 2 months rent as a deposit can be deemed a premium lease, i,e, you are paying the landlord a sum for the privilege of living in the property.

I know that applied to Rent Act tenancies, but I did not think it applied to assured tenancies.

[PaulF]

It's in the HA somewhere but can't remember where at the moment

[jeffrey]

It's in the HA somewhere but can't remember where at the moment

It's tucked-away obscurely at the end of s.15 (see underlined bit below) but, even then, relevant only during a periodic tenancy.

15. Limited prohibition on assignment etc. without consent.

(1) Subject to subsection (3) below, it shall be an implied term of every assured tenancy which is a periodic tenancy that, except with the consent of the landlord, the tenant shall not:
(a) assign the tenancy (in whole or in part); or
(b) sub-let or part with possession of the whole or any part of the dwelling-house let on the tenancy.

(2) Section 19 of the Landlord and Tenant Act 1927 (consents to assign not to be unreasonably withheld etc.) shall not apply to a term which is implied into an assured tenancy by subsection (1) above.

(3) In the case of a periodic tenancy which is not a statutory periodic tenancy or an assured periodic tenancy arising under Schedule 10 to the Local Government and Housing Act 1989 subsection (1) above does not apply if:
(a) there is a provision (whether contained in the tenancy or not) under which the tenant is prohibited (whether absolutely or conditionally) from assigning or sub-letting or parting with possession or is permitted (whether absolutely or conditionally) to assign, sub-let or part with possession; or
(b) a premium is required to be paid on the grant or renewal of the tenancy.

(4) In subsection (3)(b) above “premium” includes:
(a) any fine or other like sum;
(b) any other pecuniary consideration in addition to rent; and
(c) any sum paid by way of deposit, other than one which does not exceed one-sixth of the annual rent payable under the tenancy immediately after the grant or renewal in question.

[dominic]

"or other money" means this probably falls under the definition of Deposit under the HA 2004, as this could include damage to the property etc.

Accordingly, either:

a. this phrase should be removed; or

b. the whole amount must be protected in a scheme (if it is an AST).

[Lawcruncher]

Section 15 HA 1988 is not equivalent to Sections et seq of the Rent Act 1977. It does not prohibit taking a deposit exceeding two months' rent, it just sets out the consequences of doing so in certain cases.

[jeffrey]

Section 15 HA 1988 is not equivalent to Sections et seq of the Rent Act 1977. It does not prohibit taking a deposit exceeding two months' rent, it just sets out the consequences of doing so in certain cases.

Yes, i.e. only during a contractual [non-statutory] periodic tenancy granted on the basis of no assignments.

[Lawcruncher]

I think it needs to be borne in mind that any clever scheme that seeks to get round protection that Parliament has seen fit to provide is generally doomed to fail.

If you set something up so that the tenant pays something that the landlord is under any sort of obligation to refund, I do not see how that something can be anything other than a deposit.

If you set up a genuine "month-in-hand" system I think you will be all right. Under such a system you pay two months on entry but never pay anything at the start of the last month - it is covered by the month-in-hand. An agreement for six months starting on 1st January would require payments something like this:

Rent for January and February to be paid on 1st January

Rent for March to be paid on 1st February

Rent for April to be paid on 1st March

Rent for May to be paid on 1st April

Rent for June to be paid on 1st May

At no time is the landlord holding money that is potentially refundable to the tenant.

The words: Refund any rent you have paid which relates to a rental period which starts after the tenancy ends. We are allowed to take from this refund any rent or other money you owe us make it clear that the landlord is holding money for security. They create what is a deposit in all but name.

[adamr]

Thanks a lot for the comments so far. I've emailed the RLA, though am not sure how successful that will be as I'm not a member (I just paid the £5 for the agreement).

I think it needs to be borne in mind that any clever scheme that seeks to get round protection that Parliament has seen fit to provide is generally doomed to fail.

Just to be clear, I'm not trying to get round anything. In fact I chose to pay for the RLA agreement in the hope that it would be sensible and clear for all involved!

If you set up a genuine "month-in-hand" system I think you will be all right. Under such a system you pay two months on entry but never pay anything at the start of the last month - it is covered by the month-in-hand. An agreement for six months starting on 1st January would require payments something like this:

Rent for January and February to be paid on 1st January

Rent for March to be paid on 1st February

Rent for April to be paid on 1st March

Rent for May to be paid on 1st April

Rent for June to be paid on 1st May

At no time is the landlord holding money that is potentially refundable to the tenant.

So what happens if the tenancy carries on on a monthly basis after the end of the fixed term?

The words: Refund any rent you have paid which relates to a rental period which starts after the tenancy ends. We are allowed to take from this refund any rent or other money you owe us make it clear that the landlord is holding money for security. They create what is a deposit in all but name.

Yes, if this is the case, do I need to register it under the deposit protection scheme (and, for that matter, reduce the "real" deposit, so I don't go over the 1/6th year limit)?

This is all a bit annoying as I've already had a Deed of Guarantee signed so presumably if I make any subsequent changes to the tenancy agreement, I'm going to have to re-arrange the signing etc of that as well...

Thanks,
Adam

[Lawcruncher]

So what happens if the tenancy carries on on a monthly basis after the end of the fixed term?

You have some tricky drafting to do.

Yes, if this is the case, do I need to register it under the deposit protection scheme (and, for that matter, reduce the "real" deposit, so I don't go over the 1/6th year limit)?

I think you probably do. If you are going to have to do it, you may just as well have an agreement that provides for a deposit in the normal way.

This is all a bit annoying as I've already had a Deed of Guarantee signed so presumably if I make any subsequent changes to the tenancy agreement, I'm going to have to re-arrange the signing etc of that as well...

Almost certainly, yes.

[adamr]

So what happens if the tenancy carries on on a monthly basis after the end of the fixed term?

You have some tricky drafting to do.

Grr. Has anybody else used the RLA agreement and/or had any clarification from them?

Thanks,
Adam

[adamr]

OK, I've been doing some more research and it seems there's some controversy regarding the RLA agreement (e.g. post 16: ht tp://forums.moneysavingexpert.com/showthread.html?t=1825589), which is frustrating as I thought by paying a reputable organisation a fiver I'd get a decent document

Now I need to work out how to fix it and remove the month-in-advance rubbish. I've found an old version of the document (ht tp://ww w.tenantdocs.co.uk/RlaAst2004Free.pdf) floating around which is very similar to the current one, but without the "tickbox" section on the month-in-advance thing or section D8.

Does it seem sensible to simply remove those two bits on my agreement and go with that? I'd be really grateful for any advice as my tenants are due to move in in a couple of days!

Thanks a lot,
Adam

[Lawcruncher]

I have seen one agreement promulgated by a reputable organisation and was not impressed. Some legal advice given on the websites of reputable organisations is plain wrong. I often wonder if the documents drafted and the advice tendered are the responsibility of Sandra in accounts.

No precedent can ever be guaranteed to be perfect or to cover all the angles. Even so, it is not unreasonable to repose your confidence in a precedent you find in a book published by a recognised legal publisher or produced by a landlord and tenant specialist lawyer. Anything else needs to be treated with caution.