Must advance rent be protected as a deposit or not? Can ADR make me pay 3X?

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    Must advance rent be protected as a deposit or not? Can ADR make me pay 3X?

    Hi, I read:
    http://www.landlordzone.co.uk/blog/l...-not-protected

    My tenants have moved out and I have returned most of the deposit but some money remains in the scheme for ADR over unpaid bills. I have never done ADR before so I am worried after reading the above article that the ADR will advise T to claim 3X when they see the AST I have to send with the evidence form.

    On signing I took £1000 deposit plus one month's rent and I protected the £1000 but not the rent. The rent was for the final month.

    The wording in the AST signed about 6 months before moving in is:

    "Rent £X per month payable in advance by equal payments on the 1st day of each month. First payment to be made on 1st July 2011. Final payment for 1st June 2012 made on 3 Jan 2011(signing date)."

    along with

    "On signing this agreement £1000 must be paid to be held as a deposit.

    One months advance rent (the final June 2012 installment) will also be paid." The remaining rent will be paid in 11 installments on the 1st day of each month from 1/7/2011 until a final payment on 1/5/2012."

    Am I a risk of 3X sanction if I go ahead with ADR and send in the AST?

    IMO the advance rent was taken for a specific period and no other purpose. It was spent once paid and not returnable. T had paid for the last month and was entitled to stay there for his money. I do not see money that has been "spent" can be considered "security" for future performance.

    However I am so worried I might just back out of the ADR and try to get the bills resolved another way.

    Please let me know what you think

    Thanks and thanks again

    #2
    The extra month's payment you took should indeed have been protected as a deposit and the prescribed infomration given to the T within 30 days. Saying it was taken for a specific purpose at the end of the tenancy does not make it OK.

    My advice would be to return the whole amount immediately and hope the T does not sue you for the penalty.
    'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

    Comment


      #3
      As someone without much knowledge of the deposit protection system I'm astonished at this. If rent taken in advance for the last month should be protected why not also for the first month or indeed any rent paid in advance for any period? One month, three months, six months - where to draw the line?

      Isn't it the case that this was a one off error in deciding the case quoted or is it supported by other judgements? Or am I completely missing the point?

      Comment


        #4
        Wow, this is interesting. I am renting and (as per previous posts) have NOT been given any prescribed information from the Agent, I only have the single sheet sent from the Deposit Protection Service. I also paid six months up front plus deposit, however the DPS only covers the deposit - is this another discrepancy from the Agents I wonder?

        Comment


          #5
          Originally posted by Mr Green View Post
          As someone without much knowledge of the deposit protection system I'm astonished at this. If rent taken in advance for the last month should be protected why not also for the first month or indeed any rent paid in advance for any period? One month, three months, six months - where to draw the line?

          Isn't it the case that this was a one off error in deciding the case quoted or is it supported by other judgements? Or am I completely missing the point?
          Have to admit I still have not got to grips with this, but we don't do advanced rent.

          The ruling by Judge Collins seems perverse on the information we have seen.

          A deposit is intended to be returned after damages deducted; a rent is for renting a property.

          What is it that he found so difficult?

          Has anyone worked through the cost implications of putting £Xk of rent into a deposit scheme? Presumably the rent has to be increased to cover them?

          Is this precedent setting? I assume not.

          ML
          Refer Mad Regulators to Arkell vs Pressdram.

          Comment


            #6
            Originally posted by midlandslandlord View Post

            The ruling by Judge Collins seems perverse on the information we have seen.
            This has been overturned:

            http://www.landlordlawblog.co.uk/201...johnson-v-old/
            I'm a good tenant with great landlords
            I'm also a living, breathing, fully cooked female.

            Comment


              #7
              Originally posted by Brb View Post
              I wonder why the T was publicly funded.

              I love this bit:

              The Defendant also claimed that the prescribed information had not been served. However this claim that was later dropped as the prescribed information had been contained within the tenancy agreement – each page of which she had initialled.
              My reply on the post:

              Tessa

              My comments.

              1 - So my take is that T was trying to kitchen-sink it.

              2 - This perhaps points up the silliness of administrative landlord-auto-spanking being put into law, as we have with the DPS regulations, and the opportunities for attempts to use the Courts to make money that that creates.

              There is a correct solution for encouraging registration of deposits, but that is probably not it.

              3 - I'm interested that this was a publicly funded case. Why?

              I doubt that somebody from abroad paying £1000 a month and £5-6k in advance was LHA, but perhaps I'm wrong.

              4 - Is there any way we can find our Judge Collins' original 'reasoning'?

              A sensible result, though.

              ML
              Refer Mad Regulators to Arkell vs Pressdram.

              Comment


                #8
                I'm reassured that the case was overturned. I will take the advice of Mind the Gap anyway as my situation is not the same. IMO the statute is worded very badly and does not draw a distinction between money that is returnable and money that is not.

                Surely the point of the scheme was intended to ensure tenants get money returned to them that they are entitled to. What is the purpose of protecting money that is not returnable? If it is not being protected from any foreseeable event then it can only be held by a scheme but not "protected" in the true meaning of the word.

                Also my understanding of the money being already "spent" turns out to be wrong based on this:

                https://www.landlordsguild.com/payme...yment-of-rent/

                However, the due date of the last month has passed an the payment of that rent has been discharged so the money no longer exists. Can I still be in trouble retrospectively for not protecting it?

                My motivation to take the final months rent in advance was to make sure that the obligation to pay the last month's rent is fulfilled ahead of time so that T doesn't scarper without paying his last month.

                I have re-let the property with the same arrangement of last month in advance. The deposit is protected but not the rent. What can I do now so as to avoid trouble? If I refund the new T the advance rent can I still be sue for 3X?

                Is there anyway of wording the agreement in future to make the advance payment discharged upon receipt("spent") and therefore no longer in existence to be called a deposit?

                Comment


                  #9
                  I think it depends on the detailed wording of your agreement, so you would need advice.

                  There's more commentary on Tenancy Law blogs (eg my link above).

                  ML
                  Refer Mad Regulators to Arkell vs Pressdram.

                  Comment


                    #10
                    I don't think it is that complicated.

                    Imagine a 12 month tenancy begins on 1 January and on that day (or just before) you take a deposit of £1000 and one month's rent in advance of £500. You protect the £1000 and bank the £500. On Feb 1 the T pays you another £500 rent. You bank it. And so on.

                    Now imagine that for some reason you have asked the T to stump up more than one month's rent in advance (say three months' worth). He hands this over on Jan 1st along with deposit; you protect the depsoit and bank the 3 months' worth of rent. No more rent is now due until April 1st.

                    What you cannot do is take three months off the T on Jan 1st claiming that 2 months' worth is for the following November and December and thus demand more rent on Feb 1st.

                    Hope that makes sense.
                    'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

                    Comment


                      #11
                      Originally posted by mind the gap View Post
                      I don't think it is that complicated.

                      Imagine a 12 month tenancy begins on 1 January and on that day (or just before) you take a deposit of £1000 and one month's rent in advance of £500. You protect the £1000 and bank the £500. On Feb 1 the T pays you another £500 rent. You bank it. And so on.

                      Now imagine that for some reason you have asked the T to stump up more than one month's rent in advance (say three months' worth). He hands this over on Jan 1st along with deposit; you protect the depsoit and bank the 3 months' worth of rent. No more rent is now due until April 1st.
                      It would be not much use anyway because by april, you'd be no better off than if you just got the rent one month at a time.

                      Originally posted by What you [B
                      cannot[/B] do is take three months off the T on Jan 1st claiming that 2 months' worth is for the following November and December and thus demand more rent on Feb 1st.

                      Hope that makes sense.
                      I understand. The new ruling does not necessarily get me off the hook. In my case I have done exactly what you say above. I innocently thought that by specifying the period the payment was for and banking it, those funds had been permanently accounted for as "spent" in return for the final month of accommodation and no other purpose. By the wording of the Act, I might be expected to "protect" this "spent" money. Hypothetically, under what circumstances would the deposit scheme refund this advance rent payment to T at the end of the tenancy?

                      Now I need to decide what to do about the money I took from the new T. Can I still get fined if I give it back to him or protect it late?

                      Comment


                        #12
                        I've done some more reading and found that there is no way out of the penalty now if it is claimed against me other than standing my ground and claiming the money was spent and not a deposit and not returnable as is a defining characteristic of a "deposit". In fact, if I try to protect it now, the deposit scheme will advise T to claim his bonanza. If I get a 3X fine, that is the end of me providing accommodation. In future, I will no longer take advance rent but be ready with the court forms at the end of the year and factor my losses into the overall cashflow.

                        The wording of the act does say that the money must be "intended to be held as security against the tenants performance of his obligations". I never intended to hold the advance rent until a later date and can prove that I spent it myself before T moved in, so maybe my situation is ok? To claim 3X, they would have to prove that the money was taken with the intention of being held until a later date which it was not.

                        Comment


                          #13
                          I still think you are confused. As I explained, you cannot hold back rent paid in advance, for a period later in the tenancy. The fact that you have spent it (it doesn't matter on what!) is irrelevant.

                          It has always seemed pointless to me anyway. Some LLs try to demand and hold back a months rent for the end of the tenancy in case the Ts don't pay their last month's rent. The obvious flaw with that argument is that Ts who are disinclined to pay rent will contrive not to pay the penultimate month's rent instead.

                          It is really not worth the hassle.
                          'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

                          Comment


                            #14
                            Thanks mind the gap. With the best of intentions there are clearly a lot of gaps that one can fall into in this game. I think I understand that legally you are probably correct that it is impossible to agree a due date for rent other than the date of the actual period of occupancy. e.g one cannot agree with T that the rent for 1st December 12 is due on 1st Jan12. In my case I genuinely misunderstood the legalities and in my mind I had agreed to move the liability forward to the advance date and in my mind and also T's understanding was that the liability/obligation for rent for the December period was discharged on the spot the previous January. In terms of 'mens rea' the money was not "intended to be held" even if strictly speaking, legally it was actually "held". But then again what would stop any L claiming he "thought" it wasn't held?

                            Where is it defined that rents cannot be discharged until the relevant period arises? Or is it just obvious common sense? In my mind I made a contract with T to promise him accommodation for a future date in exchange for payment "now".

                            If the money was "intended to be held" in case the tenant did not pay his last months rent, then it would follow that the tenant would be in breach of contract if he did not pay the last month again at the time even if he'd already paid in advance. Then he would be entitled to a refund from the "held" money which at all times belonged to T - that sounds exactly like a deposit to me. In my case there was never any expectation that T must pay again or that a refund would be due.

                            I understand what you say and feel on shaky ground. I still think that the "intention" would have to be proved against me.

                            In future I won't bother with advance rent. I only ever had one case of T scarpering and he was a "professional T" the rest of them have been honest.

                            Comment


                              #15
                              You *could* go for a larger deposit instead - up to 2 months is legal, which would give some leeway to offset against rent should T vanish.

                              Ts may be reluctant, though.

                              ML
                              Refer Mad Regulators to Arkell vs Pressdram.

                              Comment

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