Court of Appeal decision made on when is a payment rent and when is it a deposit

@ SallyT

No you cannot it is money held for the discharge of a future obligation - to return the keys. So it is a deposit!!

@ Robert

Good luck to you there is no doubt you are outside the 'protection' of Johnson and could be the subject to a claim that you did not protect the other 3 months in your example. Understand why you do it, understand the commercial logic. But to say you would not expect a Johnson psosition is perversely bvetry accurate, because you will not get one!!

Yours will NOT be deemed to be rent in advance because the payments collected are then not covering the immediate period.This was a key plank in the Johnson decision.

Yours is no different than taking the 4 months for a four month tenancy but asking the tenant to start paying month 3 or 4 onwards - paras 34-38 in the judgement make this crystal clear as being a deposit.

Sorry - but it is a commercial decision and risk judgement of course I realise and respect that. As with all my clients al I can do is give advice that keeps them out of jail and/or their wallets intact!!

I don't agree with your brainy pal. My contract states that the rate of rent is £1,000 per month (just the same way that my plumber may tell me his rate is £25 per hour). Then in the rent payable section I specify how the rent is payable. There is no question of suggesting the payments are monthly and then agreeing, by the way, that four months is payable up front. The payments are as specified as in my example up front.

I could just as easily state that the rent is £12,000 per annum – does your brainy pal think this would make any difference? I would be quite willing to make this change if someone genuinely thought it made a difference, still sticking to the same payment pattern.

I must emphasise that I am talking about the rent due under a fixed term contract. I think the provision for the two month payments in the new periodic tenancy may have worked but the term was not invoked and I would not use such a term so I have not given that aspect much thought.

Industry Observer, oh dear, and I thought we were getting on so much better and then you go and say "there is no doubt you are outside the "protection" of Johnson"!! I think that what you mean is that "in my opinion and my brainy friend's opinion we think there is some doubt and you may be outside the "protection" of Johnson"

Well sorry but I think that, whilst my example is not a complete copy of Johnson, the principle may still apply so I think I have a case. I agree that my rent will not be treated as payment in advance, but this is because the contract provides up front for skewed payments, not for the reason you state.

As for practical purposes I do not have to give s21 notices anyhow (though I still do) and as I have no problems getting possession I have to ask myself what is the higher risk: failing in a court case brought by a litigous tenant of losing three months rent due to a foreign tenant doing a bunk and being sued by the landlord for negligence.

As you say it is a commercial decision and risk judgement. In this case I have three parties to satisfy (me, tenants and landlords) and as with the deposit discussion until I am persuaded otherwise I am happy with my methods.

@ Robert

Calm down dear!! My "brainy pal" is an ex letting agent who for the past 15 years has run a very well respected training company that delivers landlord accreditation courses for local authorities amnongst many other things, including being the eternal training company for a very large - and I mean very large - lettings company.

As I said you can and must do as you wish Robert but just wishing it so won't make it so. If something is deemed to be a deposit legally (by a Court) then it is.

Your contract can state what it likes the issue is whether what actually happens on the ground agres with it or is in conflict, and whether clauses etc are UCT etc compliant anyway.

Say the rent is £12000 pa anyway if you wish, and that it is payable £1000 per month. But that is not what you are doing is it? You are saying the rent is £1000 a month but the tenants must pay £4000 up front and then £1000 monthly. So far so good ...but

then we come to the sticking point post Johnson.

The £1000 starts straight away out of the £4000 - that is fine - but then the tenants are expected to pay £1000 a month for another 8 months, then you use the other £3000 to pay the last three months rent.

All very ingenious I grant you, but sadly NOT supported by Johnson where the decision was based on the fact that the amount demanded then covered the term stated.

I'm sorry if you don't like it Robert, and my "brainy pal" is not the only one that holds this opinion I have it from someone else who actually takes cases to the CopA and also deals with disputes - a solicitor.

Sorry ignore the message if you like that is your prerogative but don't shoot the messenger just because you don't like the message.

The periodic nonsense in Johnson has nothing to do with any of it, ignore that for your purposes.

http://www.bailii.org/ew/cases/EWCA/Civ/2013/415.html

@ Robert

Study para 20 and then in real detail paras 34-38 they are the ones that say you cannot be holding money but at the same time taking money for the same period.

If your agreement is brilliantly drafted to say that the £4000 is payable on commencement date, that £1000 of it will be used for month one rent, then the tenant pays £1000 a month and then months 10-12 are payable from the balance of the original £4000 you might just get away with it but you are getting into Johnson territory with convoluted and comples agreement terms

OK so I have been a landlord for 20 years and used to be on the executive committee of a well known national landlords' association and still run a helpline for landlords. Now we have got that out of the way ….

You seem to be confusing two aspects. The contract states the rate of rent which is £1,000 a month or £12,000 per annum. Then the contract states the method and timing of payments.

The distinction is quite normal. My plumber has an hourly rate; my builder has a daily rate. However, I do not pay them hourly or daily. I pay on production of an invoice or agreed progress payments. This split is just the same with tenancy agreements.

My relevant contracts do say that the rent is payable in advance and part monthly and part on a different basis. This is in part if the individually negotiated terms, not the standard "small print" terms. The payments are expressed in advance in the written agreement. Nowhere does it say the rent is payable monthly except for …, the actual payments are specified.

So I am saying that the RATE of rent is £1000 a month (or £12,000 per annum) but the tenants must pay £4,000 in month one and then £1,000 monthly for eight months. The contract is quite clear. I do not use the balance of the £4,000 to pay the last three months rent. No rent is payable in the last three months the payment pattern is £4,000 followed by eight payments of £1,000, period no ifs, not buts.

I don't think this is ingenious but it's very kind of you to say so. I cannot see how this can be rejected as not supported by Johnson because that decision was based on the fact that the amount demanded then covered the term stated. The rent I demand also covers the term stated.

You then suggest that your brainy pal is supported by a solicitor who takes disputes to the Court of Appeal. You will pardon me for making the rather obvious statement that in the vast majority of cases taken to the Court there are two instructing solicitors, one of which is usually found to be wrong. If your solicitor friend likes to take cases to the Court of Appeal then you have to wonder whose interests he is acting in and what his success rate is.

Let's face it, I understand it that the tenant Old in this case was on legal aid, without which this would not have gone this far. I will park the issue as to whether that is a good thing or a bad thing as I am not convinced I could argue either side very strongly.

I am not shooting the messenger just because I don’t like the message. I am shooting him because I think there is some doubt and your postings don't convince me that you have understood all the facts in my case (as you keep contradicting them). You tend to be a little strong in your opinions and some balance is necessary. Oh, and I don't need to calm down, just maybe SHOUT a little to get my point across because I am being deafened by those who will not stop, take a breath and listen.

PS Is your “brainy pal's” first name David?

PPS Brilliant and genius in two postings – you may make it onto my Christmas card list yet!

@ Robert M

So I am saying that the RATE of rent is £1000 a month (or £12,000 per annum) but the tenants must pay £4,000 in month one and then £1,000 monthly for eight months. The contract is quite clear. I do not use the balance of the £4,000 to pay the last three months rent. No rent is payable in the last three months the payment pattern is £4,000 followed by eight payments of £1,000, period no ifs, not buts.

Right now I think this some of this at least is new information. Forgive me but at least on the first posting it was £4000 paid in month 1 to include month 1, but then they had to start paying in month 2. So you are carrying forward a £3000 overpayment on the rent account, which gets mopped up in months 10 to 12 by drawing down on it though you dsay in effect no rent is payable.

I still think that could be risky but can you give me an example of how you express the term and payment dates because that seems to be the whole key.

If in your agreement you state the term is 12 months from 1st January and the rent is payable by one instalment of £4000 in January and then 8 instalments of £1000 each May to December then clearly subject to correct wording you'd be OK.

The problem I think is that you are collecting rent in month 2 and as far as I can see, and I could well be wrong, that makes the balance of £3000 a deposit. Johnson made it specific that in effect if the rent matched the term for which it was payable that was advance rent. Rent taken in advance has to cover the rental period for which it is taken in advance. Usually the next 6 months as in Johnson.

I am not sure you can achieve the same result by splitting it and making part of the advance payment only received at a later date. Maybe you can this is a question unanswered in Johnson because they were not asked to address it.

Yours does not have continuity of rental months covered by the money collected.

You have a 12 month term with this split. As I say if the £4000 covered the first 4 months and then monthly thereafter there would be no question of it being anything other than rent in advance subject to the agreement wording being crafted correctly, which I am sure it is.

The question is whether even brilliantly worded the method does not fall foul of the 2004 deposit definition. All I can tell you is that paras 34-38 of Johnson make it quite clear that if you hold a sum for rent in advance and then collect monthly rent during that same period (or before the money has run out) that is a probably a deposit.

My brainy pal also refers to one solicitor being right and one being wrong in any legal case. I don't think the other solicitor contact with CoA experience is an ambulance chaser by the way!! Also by the way he wouldn't take the case personally of course, just be the acting solicitor like Shoosmiths were for Johnson.

Not sure if any of this helps and if you are certain of your ground then no problem. Just that Johnson has at least clarified the period to which advance rent must be allocated and what happens if you collect further rent during that period.

Let me have that example of how you express the term from 1st January?

As explained above, my contract for a calendar year tenancy would say:

1) the term is 1 January to 31 December

2) the rent is £1,000 per month (ie this is the rate from which payments due are calculated, the definition of "Rent" if you like);

3) £4,000 payable on or before 1 January;
4) £1,000 payable on 1 February
5) £1,000 payable on the first of each month thereafter, with the last payment due 1 September.

You say that I an carrying forward £3,000 overpayment on the rent account, which gets mopped up in months 10 to 12 by drawing down on it. Well yes and no.

If you are producing a set of accounts on the accruals basis to any date between
31 January and 30 September then, yes, there is a prepayment. However, that does not mean the payment has been made voluntary in advance or demanded before it is due. The contract requires the lump sum payment up front, and the payment is made to meet to meet an existing obligation under the agreement.

This is a bit like the up front payment on some car financing contracts, or the payment on three months rent in advance on a traditional landline telephone bill. To address the question of whether it is a deposit you have to move away from matching the period the payment covers to what the agreed pattern of payments are and what they represent.

"If in your agreement you state the term is 12 months from 1st January and the rent is payable by one instalment of £4,000 in January and then 8 instalments of £1000 each May to December then clearly subject to correct wording you’d be OK." - Agreed

"The problem I think is that you are collecting rent in month 2 ….." I am.

"….and as far as I can see, and I could well be wrong, that makes the balance of £3,000 a deposit." I agree, you well be wrong.

"Johnson made it specific that in effect if the rent matched the term for which it was payable that was advance rent. Rent taken in advance has to cover the rental period for which it is taken in advance." Well I am missing this. I read the case to say that you have to decide if the payment is made to discharge an existing obligation (rent payment) or as security for some obligation (deposit).

Like Johnson, I also collect a deposit. Let's say in this case it is £1,250. So before the tenant moves in he pays £5,250. Why does he pay tha? Because the contract we have agreed requires a security (deposit) of £1,250 and a payment of £4,000 to discharge an existing obligation (the front loaded rent).

Yes, I agree Johnson does not answer the specific point where the rent is front loaded. However, what Johnson does say is that rent does not have to be paid in equally spaced installments of the same amount and that anything else you do might well be assumed to be a deposit. Instead, it says you look to see what payments are made and what do the parties intend they are for. I would suggest that and the wording of the agreement will prevails if it is not ambiguous (and presumably there is no evidence the parties have agreed otherwise).

Read the last half of paragraph 37. If I asked my tenant for £1,000 on 1 October they might well say that the rent has already been paid. Actually, to be more accurate, they should say what rent – no more is due under the contract.

@ Robert M

As asked elewhere you aren't the Robert May that I am exchanging with in another life on another forum, are you?!!

Anyway this is very interesting and you make very good points. It is now 1815 at the end of a long week and I need my first G&T so if I may I will return to this tomorrow but the points you make below as far as I can see support your position which to me and looked at in the complete round looks more sound.

Be back to you tomorrow

IO

How about this, don't take a deposit at all, monthly rent is say £550, no deposit taken. You always have to spend money when a tenant leaves anyway, surely this removes a lot of problems assuming you get a decent tenant.