When is advance rent a deposit? Johnson v. Old

By August 27, 2014Litigation

letting

The case of Piggot v Slaven (2009) marked a change in the way the law viewed advance rent. Prior to this case, any advance rent received by a landlord would not amount to a deposit on the property. The rent was instead used as payment towards the monthly rent under the lease, and the tenant would continue to make payments once this advance rent had run out. However, in this case the Grimsby County Court held that asking a tenant to pay money that would count as the final two months’ rent under the tenancy would effectively amount to a deposit.

This case has since been contradicted in the form of the Court of Appeal’s ruling in Johnson v Old [2013] EWCA Civ 415. In this case a tenant paid 6 months’ rent upfront for a 6 month tenancy. When her landlord wished to regain possession of the property and issued her with a section 21 notice under the Housing Act 1988, the tenant argued that the 6 months’ rent she had paid amounted to a deposit that had not been secured and therefore her landlord could not serve a valid section 21 notice on her. It was held in this case that the 6 months’ rent that had been paid upfront could not possibly constitute a deposit because the purpose for which it had been paid was for the rent of the property. Had the tenant been asked to pay a month’s rent on top of her previous payments, she would have questioned why she had to pay more when she had already paid all of her rent.

This is a contrast to the case of Piggot v Slaven where the amount held was for the final two months’ rent and the tenants had continued to pay rent during the intervening period. The amount they had given up front could therefore constitute a deposit.

The decision in Johnson v Old means that it is reasonable for landlords to request rent in advance and this will not necessarily constitute a deposit if the intention for the payment is purely to pay rent that the tenant would not expect to pay again. To count as a deposit, the payment must be made to discharge the tenant of any liability arising under or in connection with the tenancy. Alternatively, it must be paid as a security for the tenant’s performance of his obligations.

Aston  Bond are holding a Landlord and Tenant Seminar on 25th September, for full details please email ndarby@astonbond.co.uk. 

Amarjit Atwal, Paralegal

aatwal@astonbond.co.uk