In the context of assured shorthold tenancies this question is important because if a payment made by a tenant is a deposit then it must be protected in accordance with the Deposit Protection Rules. If alternatively the payment amounts to rent in advance, then those Rules do not apply.
In welcomed clarification the Court of Appeal has recently decided that there is a clear distinction between rent paid in advance and a deposit. The first represents the discharge of an existing obligation i.e. rent and the second represents money paid with the intent that it will be held as security for the performance of some other primary obligation or as security for the discharge of some other primary liability. Rent paid in advance is not paid with the intention that it is to be held as security for the discharge of a liability.
Careful wording of an Assured Shorthold Tenancy Agreement is required in order to minimise the risk that monies paid by the tenant might be deemed to be a deposit as opposed to rent in advance. However, subject to that point the way is now open for landlords under assured shorthold tenancies to demand not only the payment of a deposit but also the payment of rent in advance (in the Court of Appeal case the AST required the first 6 months' rent to be paid in advance).
For any further information about the case or about how your assured shorthold tenancies can be drafted to minimise the risk of monies paid in advance being held to be a deposit as opposed to rent in advance, please contact Nick Lambert on 0114 266 6660, alternatively email [email protected]
