Question about paying rent up front

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    Question about paying rent up front

    For the next year and a bit I will be a full-time student again and therefore have no income. My current landlord is selling up and I need to move flat. It seems that I will need to pay the rent for my next place up-front, which I can do. However, one thing about the arrangement is worrying me:

    The letting agents I have spoken to say that when I pay the rent up-front, they forward the entire years' rent to the landlord immediately, rather than holding it in a client account and paying him in monthly instalments. Am I right in thinking that if the flat is mortgaged before I move in, and the landlord then goes bankrupt, the mortgagee can kick me out and I will lose my money for nothing? Should I check the land registry to see if there is a mortgage before I agree to this arrangement? Do I need to register my own lease so that the property cannot be mortgaged in the day or two between my paying the rent and moving in? [I understand that once I have moved in, provided that there is no mortgage, I cannot be evicted by a subsequent mortgagee because I will have an overriding interest].

    #2
    The agent would be right to forward the money they have received to the landlord, there's nothing useful in it for them keeping it (and they may go bust - replicating your issue).

    A mortgage lender could evict you (or the landlord could evict you for a breach of the terms of the tenancy agreement even without that).
    You can't register your own lease/charge on your landlord's property.
    If a mortgage lender calls in the mortgage or evicts you, your chances of continuing to live there are slim.

    While you're right to be concerned, that's part of the difficulty of renting with no income.
    Is it possible to find a guarantor as an alternative?
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      If the landlord lets the property with the consent of the lender, then I believe that the lender will not be able to evict during the fixed term tenancy.

      Comment


        #4
        jpkeates,

        No, I don't want to find a guarantor. That is why I have to pay the rent up front, which I am fine with in principle.

        Registering my lease (which is certainly possible, did you mean that no landlord would ever consent?) would only protect me for the day or two between handing over the cash and moving in. After I've moved in I don't need any protection from subsequent mortgagees. Registering the lease is probably an irrelevance, it wouldn't be worth the hassle to cover that tiny risk. Forget I mentioned it

        The agent going bust would be completely different to the landlord going bust. The letting agent would have to keep the money in a client account until such time as each monthly payment of rent was due. The agent would only hold it as trustee, so even if he goes bankrupt the money would never be available to satisfy the agent's other creditors. *That* is exactly why I want the letting agent to hold the cash.

        jjlandlord,

        Yes, but I wondered if the deal between the landlord and the lender was that the lender (on a BTL mortgage) would consent to a tenancy where the tenant paid rent once per month, but would not consent to this type of arrangement. Consider it from the lender's POV. If there is a tenant paying rent every month, and the landlord goes bankrupt, the mortgagee will (effectively) become the landlord and will collect the rent every month over the course of the tenancy, so that although it will not be able to sell the property, it will at least have some income in exchange. If a tenant pays rent up front and the landlord goes bankrupt, then the mortgagee will get no rent (because it has already been paid in full), *and* will not be able to sell the property.

        So if I was a BTL mortgagee, I would not consent to a tenant who wanted to pay the rent in full up front.

        Edit - I've just realised I'm not safe even against a subsequent mortgagee, unless the tenancy agreement makes it clear that the rent is due at the start of the tenancy. If the TA is a normal one that says rent is due on the xth of the month, then the fact that I've paid it in advance obviously discharges that obligation vis a vis the current landlord. But it seems to me that the mortgagee could just demand the rent as it falls due as per the TA, and the fact that I've paid the landlord would be neither here nor there. The same would be true if the LL sold up and moved abroad. Can any legal experts confirm that? - I am pretty sure it is correct.

        Comment


          #5
          Originally posted by Mark W View Post
          Registering my lease (which is certainly possible, did you mean that no landlord would ever consent?)
          Not only would the landlord be daft to agree it would breach any lender's terms and conditions

          The agent going bust would be completely different to the landlord going bust. The letting agent would have to keep the money in a client account until such time as each monthly payment of rent was due. The agent would only hold it as trustee, so even if he goes bankrupt the money would never be available to satisfy the agent's other creditors. *That* is exactly why I want the letting agent to hold the cash.
          a) "should" keep it in a separate account - they're not solicitors (and why would they have a client account set up for this purpose?) and b) who's going to pay them for the service?

          Many agent's don't understand their position as agents, asking them to be trustees as well is asking a lot.

          Yes, but I wondered if the deal between the landlord and the lender was that the lender (on a BTL mortgage) would consent to a tenancy where the tenant paid rent once per month, but would not consent to this type of arrangement. Consider it from the lender's POV. If there is a tenant paying rent every month, and the landlord goes bankrupt, the mortgagee will (effectively) become the landlord and will collect the rent every month over the course of the tenancy, so that although it will not be able to sell the property, it will at least have some income in exchange. If a tenant pays rent up front and the landlord goes bankrupt, then the mortgagee will get no rent (because it has already been paid in full), *and* will not be able to sell the property.
          The lender is very restricted what they can do when they repossess a property, and don't want to become landlords. They'll sell the property to clear as much of the mortgagees debt as they can.
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            Paying a large sum of rent up front is fraught with danger for a tenant.

            1. If paying well before the tenancy is to take effect the landlord may sell and the buyer will not be bound. That can be avoided by registering a notice of the tenancy agreement at the Land Registry.

            2. If the property is subject to a mortgage, enquiry needs to be made if the terms of the mortgage require the mortgagee's consent. If it does, consent must be obtained.

            3. Any money tendered as rent is not deemed to be rent until rent day. If the tenancy agreement provides for the rent to be paid monthly and a sum equal to six months' rent is paid, then if the property is sold part of the way through the tenancy the buyer is entitled to assume (unless of course the seller has accounted to him) that any future rent has not been paid.

            4. It is unwise in any event to hand over large sums of money without any security.

            Comment


              #7
              Lawcruncher,

              All as I thought, thanks.

              Is the risk really that big if I (i) make sure that the TA states that rent for the entire period was due on the first day of the tenancy, and obtain a receipt for its payment? Then the payment would simply be the rent, not an advance payment of rent which the LL is holding until rent day, and there would be nothing that a subsequent purchaser could make me pay; (ii) check the LR to ensure that either the property is not mortgaged or if it is, obtain consent, and, obviously, that the LL owns it; (iii) ensure that the tenancy does not become a statutory rolling tenancy- because if I understood correctly the effect of (i) would be that the rolling tenancy has a period of one year too.

              Then I would not have security as such, but I would have an overriding interest and no obligation to pay any more rent to anyone.

              Comment


                #8
                As you are the only person who can prevent the tenancy becoming a periodic tenancy by moving out, a landlord would be daft to agree to the tenancy agreement as you outline.
                Not that there aren't daft landlords out there.

                You won't be able to find out if the landlord has consent to let or what type of mortgage they have.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  As you say, if the rent is applied to the whole term it is different, but the ensuing statutory periodic tenancy will be a yearly tenancy. That can be avoided by adding an extra month to the fixed term or making only 11 months rent payable at the start. If the rent is payable monthly at the end of the tenancy the statutory periodic tenancy will be a monthly tenancy.

                  You will have an overriding interest once the tenancy starts by your taking possession. However, you will have no such interest before taking possession. You can though protect your position by registering a notice of the agreement at the Land Registry.

                  Comment


                    #10
                    Originally posted by jpkeates View Post
                    As you are the only person who can prevent the tenancy becoming a periodic tenancy by moving out, a landlord would be daft to agree to the tenancy agreement as you outline.
                    Not that there aren't daft landlords out there.
                    Why can't he serve a valid s 21 notice during the fixed period?

                    Comment


                      #11
                      Originally posted by Lawcruncher View Post
                      As you say, if the rent is applied to the whole term it is different, but the ensuing statutory periodic tenancy will be a yearly tenancy. That can be avoided by adding an extra month to the fixed term or making only 11 months rent payable at the start. If the rent is payable monthly at the end of the tenancy the statutory periodic tenancy will be a monthly tenancy.

                      You will have an overriding interest once the tenancy starts by your taking possession. However, you will have no such interest before taking possession. You can though protect your position by registering a notice of the agreement at the Land Registry.
                      Good idea re. the first para.

                      Why don't I have an overriding interest before taking possession? I thought a lease overrides provided that it takes effect in possession within three months of the date of grant? [Sch 3, Para 1 LRA 2002], which of course this tenancy would.

                      Comment


                        #12
                        Originally posted by Mark W View Post
                        Why can't he serve a valid s 21 notice during the fixed period?
                        He can, but it doesn't end the tenancy and if you stay one day past the fixed term, it will become a statutory periodic tenancy.
                        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                        Comment


                          #13
                          Originally posted by jpkeates View Post
                          He can, but it doesn't end the tenancy and if you stay one day past the fixed term, it will become a statutory periodic tenancy.
                          Hmm, perhaps I don't understand what a s 21(1)(b) notice does then. I thought the position was that, if L serves a valid s 21(1)(b) notice during the fixed term, and T does not vacate at the end of the fixed term, L can go to court and the court must grant a possession order. The length of time the court gives T in the possession order will not depend on what the length of the (now expired) fixed term was. (I understand 14 days is typical).

                          Is that not right? If it is right, why does it matter what the length of the SPT is, when L can get a possession order anyway?

                          Comment


                            #14
                            What you're saying is essentially correct, but when you don't leave a new SPT is created automatically, so it's already happened by the time the hearing takes place.

                            Which just complicates everything.
                            You would owe the rent for the next 12 months, for example (which you probably wouldn't want to hand over).

                            And the practical effect isn't the same as the theory, it might take several weeks to get to a hearing.
                            Many s21 notices aren't valid because they're complicated to get right and, since last year, there are a number of things you can do to make it more difficult (again, things you can elect to do that the landlord has no control over).
                            Even if the court orders the repossession, there can be a long waiting time for bailiffs (months isn't unusual).
                            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                            Comment


                              #15
                              Originally posted by Mark W View Post
                              Why don't I have an overriding interest before taking possession? I thought a lease overrides provided that it takes effect in possession within three months of the date of grant? [Sch 3, Para 1 LRA 2002], which of course this tenancy would.
                              You need to distinguish between a lease and an agreement for lease. Unless made by deed and containing words of grant, a tenancy agreement does not create a lease. The leasehold estate only arises when the tenant takes possession.

                              Comment

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