Paying rent in advance- possible problems

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  • Paying rent in advance- possible problems

    Hi, I am due to sign a tenancy agreement later in the week to rent out a property. As I am a student, the lettings agent asked for the rent for the fixed term period (in this case 6 months) to be paid in advance. I have no issues doing this, but I have a few questions about how I can best act to secure my money. The amount I'm paying upfront is quite large (£9k), and I've been looking stuff up, but I could do with some opinions.

    Should I attempt to get the agent to change the AST to include a clause stating that any rent paid in advance should be returned? I've read that in the case of a surrender of the property, any rent paid in advance would not be returnable. I realise this may be the case if I were to surrender the property, but what if the landlord were to surrender it? Or if a section 8 was brought against myself if the landlord went into arrears on the mortgage? Would this still hold true?

    I've attempted to cover my back by asking the agents if they wouldn't mind asking the landlord to inform me about whether he was on a mortgage or not, but they point blank refused to even ask him, telling me it was none of my business.

    Any advice people could give me about how to safeguard my money would be appreciated. I'm aware that financially, things may get ropey for all in the future, and I wish to minimize any risk I take.

    Thankyou

  • #2
    You can find out if there is a mortgage on the property by paying £4 to the landregistry website. It will show who has a charge over the property.

    You can then attempt to find out from the lender (no idea if they will tell you) if they have given permission to let.

    If they have, they are bound by your tenacy agreement
    If they haven't, they're not.

    You are unlikely to get the agents to change the tenancy agreements - thay like to have them all the same so that don't have to check for changes every time they do something.

    If you had the fund available, how about this as a counter suggestion to their 6 months requirement...

    You will pay 3 months up front and a deposit equal to 4 months rent. That way, your deposit will have protection from one of 3 government approved schemes (preferably DPS), if the property is repossessed it will be at least 3 months before you're evicted but the down side is that you will have to pay rent from the 4th month. Obviously, at the end of the tenancy, you get the deposit back.

    Comment


    • #3
      Originally posted by Snorkerz View Post

      You will pay 3 months up front and a deposit equal to 4 months rent. That way, your deposit will have protection from one of 3 government approved schemes (preferably DPS), if the property is repossessed it will be at least 3 months before you're evicted but the down side is that you will have to pay rent from the 4th month. Obviously, at the end of the tenancy, you get the deposit back.
      Thanks for the quick response. I thought about asking if I could put more into the deposit instead, but I've read that more than 2 months rent as deposit constitutes a premium? Admittedly, I am no expert on this, so it's more than possible I'm getting the wrong end of the stick! I'll have a look on the land registry website, it's a London property, and the landlord apparently has several, so I'm guessing it's mortgaged. Does the land registry state the company it's mortgaged with though?

      Comment


      • #4
        mrmoose I applaud your diligence & question, but I fear there is no simple solution.
        1 You are a student, yet appear to suggest you will want to move within 6 month fixed term. Most student lets are for 10-12 months. You cannot terminate T during fixed term AST without mutual consent. Any unilateral vacation would leave you liable for fixed term rent. So if you pay 6 month rent in advance, don't expect any refund.
        2 Land Registry Deeds should show any charges on property eg Mort Co
        3 3 month rent + 4 month deposit option. Whilst dep remains your money, 2 months may be the max allowed and you have no guarantee LL will return without a fight. Since LL cannot access deposit before end of T you are required to make rent payments when due after 3 months
        If you pay 5 month rent in advance then AST should reflect this. The rent payment period would be 6 months with implications for both T & LL.
        I would suggest offering paying 1 month renr in advance, 2 month rent as deposit with employed, property-owning guarantor

        Comment


        • #5
          Originally posted by mrmoose View Post
          I thought about asking if I could put more into the deposit instead, but I've read that more than 2 months rent as deposit constitutes a premium?
          That is a popular misconception. It is very possible that the landlord has heard similar which may disuade him from agreeing. In the case of a tenancy that is created AS a periodic tenancy, it is true, but yours would start as a fixed term tenancy wih the potential to evolve into a statutory periodic tenancy. Westminster explains it in this link and shows the relevant bits of law.

          http://www.landlordzone.co.uk/forums...591#post324591

          Comment


          • #6
            See also this thread: http://www.landlordzone.co.uk/forums...fore-it-is-due

            Comment


            • #7
              Originally posted by mariner View Post
              mrmoose I applaud your diligence & question, but I fear there is no simple solution.
              1 You are a student, yet appear to suggest you will want to move within 6 month fixed term. Most student lets are for 10-12 months. You cannot terminate T during fixed term AST without mutual consent. Any unilateral vacation would leave you liable for fixed term rent. So if you pay 6 month rent in advance, don't expect any refund.
              Thanks everyone again for the advice. I don't plan on moving during the 6 month term- quite the opposite, I'd like to stay there for as long as the landlord will want (several years would be nice). So I'm hoping after the 6 months it'll just roll over onto a periodic with no problems. As an aside, though the lettings agency did start saying that after 4 months they wanted to re reference me, and for me to sign another 6 month AST, and pay another 6 months upfront. That's something that I'm not entirely happy doing, but I imagine I'll have more leverage on that once I'm actually in the house.

              I've tried asking them if they will amend their conditions, in terms of an increased deposit, or decreased rent upfront, but no. It's quite irritating as I have two homeowning outright guarantors that both individually earn more than 30x the monthly rental amount (their criteria), and I myself am a homeowner outright (and a landlord). I guess renting is so competitive that they can make these stipulations, and if I don't like it, they can easily find someone else.

              So any termination during the fixed term would have to be by mutual agreement- i.e. one or the other of us would have to "surrender" the house? If I was in the position where he surrendered the contract, surely I could probably refuse it unless I had written in writing that my money was to be returned?

              The thing that I'm really worried about is the landlord getting a s8. I'm probably being overparanoid, but how easy would it be for him to wait until he had the full money, then launch a s8, based on one of the more vague reasons (furniture degrading, or something)? It'd be an easy way for him to pocket several months rent, and then relet the property, but is it actually plausible that he could such a thing? How much evidence would he need etc.? (I'm a very good tenant really- no loud music, no nails in walls, no muddy shoes!)

              Finally, if the mortgage company did reposess the house, am I right in thinking it'd take 3 months until I actually had to vacate the property?

              Sorry for all the questions, and thanks again for the assistance

              Comment


              • #8
                Originally posted by mrmoose View Post
                Hi, I am due to sign a tenancy agreement later in the week to rent out a property. As I am a student, the lettings agent asked for the rent for the fixed term period (in this case 6 months) to be paid in advance.
                You really need to read lawcruncher's link in post #6. What does the contract say about when rent is payable? Does it say it is payable monthly or six-monthly? (If the latter, then, if the tenancy becomes periodic following fixed term expiry, the periods of the tenancy would be six months long - that would mean you could only give notice to quit expiring at the end of a six month period).

                Originally posted by mrmoose View Post
                Does the land registry state the company it's mortgaged with though?
                Yes, it would say who has a charge over the property. If it doesn't, then it means there's no mortgage.

                Originally posted by mrmoose View Post
                So any termination during the fixed term would have to be by mutual agreement- i.e. one or the other of us would have to "surrender" the house? If I was in the position where he surrendered the contract, surely I could probably refuse it unless I had written in writing that my money was to be returned?
                Not 'one or other'; the LL cannot 'surrender' the tenancy contract. For there to be a surrender, T must offer, and LL must accept.

                The thing that I'm really worried about is the landlord getting a s8.
                A s.8 notice is not served on the LL, but the T.

                I'm probably being overparanoid, but how easy would it be for him to wait until he had the full money, then launch a s8, based on one of the more vague reasons (furniture degrading, or something)? It'd be an easy way for him to pocket several months rent, and then relet the property, but is it actually plausible that he could such a thing?
                No. It is extremely unlikely that LL could obtain a possession order under s.8's discretionary grounds without any evidence to support the claim. In addition, eviction procedure is lengthy - LL would have to serve notice within a couple of months to have any hope of obtaining a possession order before fixed term expiry.

                Finally, if the mortgage company did reposess the house, am I right in thinking it'd take 3 months until I actually had to vacate the property?
                If a mortgage lender obtained a possession order against you, you can apply for it to be postponed for two months. See http://www.communities.gov.uk/public...essionguidance


                Originally posted by mrmoose View Post
                I've tried asking them if they will amend their conditions, in terms of an increased deposit, or decreased rent upfront, but no. It's quite irritating as I have two homeowning outright guarantors that both individually earn more than 30x the monthly rental amount (their criteria), and I myself am a homeowner outright (and a landlord).
                All the rent up front, plus a deposit, plus two guarantors, plus you're a homeowner and own other properties? This strikes me as an absurd degree of caution on the part of the agent/LL.

                Comment


                • #9
                  Originally posted by westminster View Post
                  You really need to read lawcruncher's link in post #6. What does the contract say about when rent is payable? Does it say it is payable monthly or six-monthly? (If the latter, then, if the tenancy becomes periodic following fixed term expiry, the periods of the tenancy would be six months long - that would mean you could only give notice to quit expiring at the end of a six month period).

                  .....
                  All the rent up front, plus a deposit, plus two guarantors, plus you're a homeowner and own other properties? This strikes me as an absurd degree of caution on the part of the agent/LL.
                  Thanks for the advice. Yes, it is quite absurd- I've been a tenant many times before, and have glowing references- I always pay my rent/utilities on time, treat other's houses as if they were my own etc. As I know how unpleasant it can be when tenants don't take care. Admittedly I am a student, but I'm a 22 year old (so I class as mature) medical student, who already has a degree, and has a reasonable income from investments. I think it's because of my student status, and the agents not being used to it, but it is grating.

                  I emailed the agents and explained to them the risk regarding fixed periods, telling them that the contract would have to be amended to register that the 6 month payment was to be allocated to six discrete monthly periods, and asking for a draft copy of the contract. Problem- they didn't confirm that they would do this (just gave me a lecture on what an AST was, which was nice, but quite unnecessary, and I get enough lectures at uni really! ) more worryingly, they are reluctant to supply me with a draft copy of the contract. Considering my move in date is this Saturday, I'm not sure when they're actually going to allow me to see the contract (Friday night possibly?!) but I'm starting to get worried. They've seemed quite inept previously, repeatedly asking for information (eg passport scans) that they've already recieved, but can they actually refuse to give me a draft of the contract until the day before (at which point changing anything on it in time for the moving date will be near impossible)?

                  Can anyone give me any advice as what to do? I'm in half a mind to just give up and look for somewhere else, but I'd lose nearly £400 in a holding deposit and referencing fees.
                  Last edited by mrmoose; 17-10-2011, 17:51 PM. Reason: Because I can't spell :(

                  Comment


                  • #10
                    Originally posted by mrmoose View Post
                    ...more worryingly, they are reluctant to supply me with a draft copy of the contract. Considering my move in date is this Saturday, I'm not sure when they're actually going to allow me to see the contract (Friday night possibly?!) but I'm starting to get worried... but can they actually refuse to give me a draft of the contract until the day before (at which point changing anything on it in time for the moving date will be near impossible)?

                    Can anyone give me any advice as what to do? I'm in half a mind to just give up and look for somewhere else, but I'd lose nearly £400 in a holding deposit and referencing fees.
                    The holding deposit ought to be refundable - even if they say it isn't; see this post by one of our legally qualified members (who happens to be lawcruncher): http://www.landlordzone.co.uk/forums...3090#post93090
                    (so, you could probably claim against the agent to get it back if need be).

                    I think what I'd do is write an email first thing to the agent, stating that you require to see the draft contract by close of play tomorrow, Tuesday. In addition, specify the terms which you require, i.e. in respect of when rent is payable.

                    If you read lawcruncher's post linked to in #6, then you will see that you could be at a potential disadvantage* if you pay rent in advance of when it is actually due, so if you're paying six months up front, the contract should say that this whole amount is payable on day one; but you also wish to avoid creating six monthly tenancy periods following on from the fixed term, so if there is any likelihood that you will wish to continue the tenancy after the fixed term, then the contract must be amended to avoid this - as lawcruncher suggests, one possibility is to create a seven month term, with the first payment for six months, and the second payment for one month.

                    If you decide to proceed, it would be inadvisable to sign the contract OR to move in before you have read the contract through in detail and are satisfied with the terms. Worst case scenario, - for example, if they give you the contract to sign on move in day - then cross out/amend any terms you aren't happy with, and sign next to each amendment. The agent maybe won't hand over the keys when he sees your amendments, but maybe he will...

                    *I have to say that I think it's quite an unlikely scenario, albeit possible, that LL would sell up mid-fixed term, fail to pass on the advance rent you'd paid to the buyer, and that the buyer/new LL would then demand further rent...(it's the first time it's come up as an issue in my 2.5 years on the forum). In your shoes, I would regard it as a more likely risk to have the contract say that rent is payable in advance six monthly and potentially end up with six monthly tenancy periods in a periodic tenancy. In short, if the agent won't agree to your terms, but you nevertheless want to proceed with the tenancy, I'd personally go with rent payable monthly and paid up front before it's due, as the lesser of two potential evils.

                    Comment


                    • #11
                      Originally posted by westminster View Post
                      *I have to say that I think it's quite an unlikely scenario, albeit possible, that LL would sell up mid-fixed term, fail to pass on the advance rent you'd paid to the buyer, and that the buyer/new LL would then demand further rent...(it's the first time it's come up as an issue in my 2.5 years on the forum).
                      This very issue came up the other day. The new LL found out that the tenant had paid rent 12 months in advance, but the old LL didn't hand over the rent. See the link below

                      http://www.landlordzone.co.uk/forums...ter-completion

                      Comment


                      • #12
                        Originally posted by Mrs Mug View Post
                        This very issue came up the other day. The new LL found out that the tenant had paid rent 12 months in advance, but the old LL didn't hand over the rent. See the link below

                        http://www.landlordzone.co.uk/forums...ter-completion
                        Yes, I know. It's the thread that lawcruncher links to via post #6. That's why I said it's the first time it'd come up.

                        Comment


                        • #13
                          That thread's really awful- what a horrible position for them both to be put in I'm inclined not to be too worried about the landlord selling the property- If I notice estate agents around, I'll just pin up a big banner saying "I've paid six months upfront! Love, Your (future) tenant 077XXXXXXX" Or something. In glitter glue. And sequins.

                          But anyway, I'm more concerned that the lettings agent's know exactly what they're doing and that they're doing it intentionally. And that in six month's time, I'll get a bill for another £9k, and be stuck, having to pay it, or be evicted. If this did happen, and I was served with a section 8 (for non payment of rent, presumably), would I still get a decent grace period? (I've read around other threads and the consensus seems to be that one can serve a S8 during a periodic tenancy?)

                          I assume that as the rent is payable before the 6 month period actually begins, they'd have to give the invoice to me just before my AST finished. But I also assume I'd be forced to pay it, as notice from me to leave would have to be six months (unless I was evicted)? Or could I just leave when the AST ended? (Admittedly that'd be a pretty awful situation to be in- a couple of days to find a new house, or be homeless)

                          Something else I just thought about- if I didn't pay the £9k, could they go after my guarantors to pay it, rather than getting a section 8/section 8 equivalent? And if they did get a section 8/equivalent, would it affect my guarantors?

                          Would I really be in a position to either pay it, or for my guarantors to get shafted, as there'd be no way I could give notice time? With no idea it was about to happen to me until a few days before. Please tell me I'm misinterpreting this, because that situation sounds vile.
                          Last edited by mrmoose; 18-10-2011, 01:39 AM. Reason: Thought of an even more horrible turn of events.

                          Comment


                          • #14
                            Originally posted by mrmoose View Post
                            That thread's really awful- what a horrible position for them both to be put in I'm inclined not to be too worried about the landlord selling the property- If I notice estate agents around, I'll just pin up a big banner saying "I've paid six months upfront! Love, Your (future) tenant 077XXXXXXX" Or something. In glitter glue. And sequins.

                            But anyway, I'm more concerned that the lettings agent's know exactly what they're doing and that they're doing it intentionally. And that in six month's time, I'll get a bill for another £9k, and be stuck, having to pay it, or be evicted. If this did happen, and I was served with a section 21, would I still get the two months grace, inspite of the strange statutory terms?
                            Do you mean, in the event that you didn't vacate at fixed term expiry, and that a statutory periodic tenancy arose with six monthly periods, what might happen if you didn't pay the next six monthly rent installment?

                            If the LL hadn't served a s.21 notice during the fixed term, then any s.21 notice served during the periodic tenancy would have to expire at the end of a six monthly period and he couldn't apply for possession till after notice expiry.

                            I don't think LL could serve a s.8 notice, citing the mandatory ground 8, because it doesn't give any criteria for when rent is payable six monthly. See http://www.legislation.gov.uk/ukpga/1988/50/schedule/2

                            In short, if you didn't pay, it's possible that it could be many months before LL could even apply for possession under s.21 and it's questionable as to whether he could apply sooner under s.8 citing ground 8.

                            I assume that as the rent is payable before the 6 month period actually begins, they'd have to give the invoice to me just before my AST finished.
                            No. A statutory periodic tenancy doesn't exist until it arises [by statute and] by the T being in occupation at fixed term expiry. It only arises under s.5 HA1988 if the AST tenant is in occupation at fixed term expiry. No rent for the periodic tenancy can fall due before the periodic tenancy arises. If you vacated before fixed term expiry, a SPT would not arise.

                            But I also assume I'd be forced to pay it, as notice from me to leave would have to be six months (unless I was evicted)? Or could I just leave when the AST ended? (Admittedly that'd be a pretty awful situation to be in- a couple of days to find a new house, or be homeless)
                            You could vacate on or before fixed term expiry without giving any notice, and by vacating you would end the tenancy (and your liability for rent) on the last day of the fixed term. No periodic tenancy would arise because you wouldn't be in occupation at fixed term expiry. It's not an "awful situation" - you'd know six months in advance of the event, and it would be entirely your choice as to whether to vacate or to allow a periodic tenancy to arise.

                            Something else I just thought about- if I didn't pay the £9k, could they go after my guarantors to pay it, rather than getting a section 21? And if they did get a section 21, would it affect my guarantors?
                            The guarantor's liability depends on what the Deed of Guarantee says.

                            Comment


                            • #15
                              Originally posted by westminster View Post
                              You could vacate on or before fixed term expiry without giving any notice, and by vacating you would end the tenancy (and your liability for rent) on the last day of the fixed term. No periodic tenancy would arise because you wouldn't be in occupation at fixed term expiry. It's not an "awful situation" - you'd know six months in advance of the event, and it would be entirely your choice as to whether to vacate or to allow a periodic tenancy to arise.
                              Thanks for the advice- I'm surprised that someone else is up at this hour! By "awful situation" I meant if I can't get the agents to amend the contract, and blithely sign it (probably based on their assurances that they won't assume the fixed period is six months), would I know what a mess I was in (i.e. that they had gone back on their word and the fixed term for the periodic that they were working with was six months) until I actually stumbled into the periodic tenancy and received the bill? Would there be any forewarning? If not, then I'd better make sure that the contract is changed, and that I don't listen to any verbal promises that it's not an issue (I assume they wouldn't hold up in court?)

                              Comment

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