is this a deposit or not

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  • is this a deposit or not

    Hi a friend of mine had an agent find him some tenants only. In the agreement it states "£695 per calendar month payable three months in advance. Two months rent to be returned on vacation as long as the rent is not in arrears."
    Rent is being paid monthly, normal deposit taken and held in scheme, would this extra rent taken be classed as a deposit that has not been protected as it will be returned at the end of the tenancy and has not been put against rent.

  • #2
    I'm assuming that the first month's rent is taken out of this three months' payment in advance, and I'm assuming that the agreement says that the second month's rent is due at the start of month 2, not month 4.

    That being the case, the two months' 'floating rent' would fall under the definition of a deposit and should be protected, and the prescribed information given to the T.

    If your friend fails to comply, the T could claim under s.214 Housing Act 2004 and the court could order your friend to pay the T up to 3x the value of the two months' 'rent', i.e. up to the equivalent of six months' rent.

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    • #3
      Originally posted by spare View Post
      Hi a friend of mine had an agent find him some tenants only. In the agreement it states "£695 per calendar month payable three months in advance. Two months rent to be returned on vacation as long as the rent is not in arrears."
      This is very badly worded, imo. And it's not clear whether there would be any 'floating rent' that could be deemed a deposit:

      On the one hand it says that rent is payable 3 months in advance. Fine, no deposit there, imo. At most there may be overpaid rent when tenant vacates, but it would relate to any tenancy period so would be unconditionally refundable anyway.

      On the other hand it says that 2 months rent will be returned when T leaves, which, I assume, is intended to mean what I said above. But the way it is drafted T can argue that he is due 2 months rent at end of tenancy even if he did not overpay rent, ie. that he is entitled to a 'bonus'.

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      • #4
        to me this reads like every month, the tenant pays rent for M+3, so there are always 2 months floating which is what is to be returned in the end. That plus the fact it is linked to the tenants payment performance, makes it a deposit IMHO.

        If this actually means that the tenant pays 3x rent, every 3 months for months M+1,M+2 and M+3, then that probably wouldnt be a deposit.
        All views posted reflect my personal opinion only and do not constitute professional advice which I am not qualified or knowledgeable enough to provide.

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        • #5
          Originally posted by spare View Post
          Two months rent to be returned on vacation as long as the rent is not in arrears.
          That's waving a big flag with "deposit" emblazoned on it.

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          • #6
            One of the problems here is the ambiguity of "in advance". With respect to rent it can mean (a) at the beginning of the rental period i.e. not in arrear or (b) before it is due i.e. when made payable by the tenancy agreement. There is a risk that requiring rent to be paid before it is due will be treated as a deposit.

            The "Brighton" case is apparently going to the Court of Appeal. Hopefully some clear guidance will be provided so we all know where are.

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