Court of Appeal ruling on rent paid in advance

Legal Ruling

Legal Ruling

The Court of Appeal has ruled that rent paid in advance does NOT constitute a deposit.

This landmark ruling means that landlords and agents are not obliged to treat rent recieved in advance as a deposit, which would require them to protect it in accordance with the Housing Act 2004.

The Court of Appeal’s decision came as part of the long-running case of Johnson v Old (which we reported on in January). The background of the case is that the tenant was offered a six-month tenancy and – due to the fact she could not prove she would be able to pay monthly – she was asked for six months’ rent in advance.

Later on, after a renewal had been agreed, the landlord tried to serve a Section 21 notice to gain possession of the property, the tenant, Anne Old, countered by saying that a Section 21 could not be served because she had paid rent in advance which should have been treated as a deposit and protected.

The tenant’s argument was successful at the first hearing, but was then challenged successfully by the landlord at a second. The tenant appealed the ruling of the second hearing, and the case then went to the Court of Appeal. The court of appeal ultimately sided with the landlord.

The Court of Appeal had applied the test of asking how the tenant would have responded had she been asked to make a further payment of rent for one of the months covered by the six months. It decided that the tenant would have said she had already paid it.

Had the landlord lost the case, with the Court of Appeal deciding that the rent in advance was a deposit, the penalty would have been the return of the six months’ rent in advance plus a penalty of up to three times the amount.

News of the decision will provide clarity to landlords and agents concerned about whether they should accept rent in advance and what to do with it.

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