01-05-2013 | An advance payment of rent is not a deposit

The Housing Act 2004 requires any deposit paid by a tenant to a landlord to be protected under one of three government authorised schemes. This prevents unscrupulous landlords avoiding the requirements of the Housing Act and taking the money away from the tenant by labelling it as “advanced rent” when in reality it is a deposit. 
However, the requirement to protect the deposit has posed a problem for landlords who rent out their properties to tenants with low credit ratings. They run a much higher risk of the tenant defaulting on rent payments and would like to be certain that they will receive the rent.
The Court of Appeal has come to their aide by ruling recently that in some cases advanced rent does not fall under the requirements of the Housing Act 2004 and therefore does not have to be protected under an authorised government scheme.  The distinction it would seem is between money that has been paid in advance to cover rent payments and money that has been paid as security in case the tenant defaults on those payments. The former does not have to be registered as a deposit under the Housing Act 2004 but the latter does. Prospective landlords and agents have to bear this distinction in mind when drafting the tenancy agreement so as to exclude rent payments made in advance from being protected as security.
If you would like further advice on any of the above aspects, please do not hesitate to contact us.