Premium Tenancies

Premium tenancies are something I’ve heard a bit about from a few different landlords in various parts of the Country who don’t know each other. This leads me to believe that these tenancies are more than just an urban myth but I have to admit that they are something I know very little about. However, I’ll share what I think I know and feel free to correct me. I also have some more questions which I hope will develop into a useful discussion for all landlords who hear about Premium Tenancies, search the internet for the answers, and then come across this post.

Premium Tenancies – this is what I think I know

My understanding is that if I take more than 7 weeks rent as a deposit on an AST (Assured Shorthold Tenancy) I will have created a “Premium Tenancy”. As I understand it, the implication of this is that my tenants will be allowed to sublet the property or assign their tenancy without my consent. If that’s true, I might think I’m letting to a lovely couple and subsequently find out that a modern day Ozzy Osbourne is living in my property!

Ever since I first heard this I’ve refused to take more than a months rent up front plus an amount equal to 7 weeks rent as a deposit but even then I’m still nervous about whether I’ve inadvertently created Premium Tenancies.

Can anybody actually confirm that Premium Tenancies do in fact exist and if they do whether my understanding of them is correct please?

I’ve resorted to the internet to find out more as none of my contacts have been able to answer my questions. When I search for the phrase “Premium Tenancy” nothing much comes up. Tessa Shepperson of Landlord Law has written an article about something similar but this doesn’t give me the information I need and the three month deadline Tessa set’s to raise questions via commenting has sadly expired.

If you can answer my questions and throw more light on this seldom discussed topic the chances are that you will become a “legend” as every other landlord or letting agent who searches the internet for more information about “Premium Tenancies” is highly likely to find this article.

Assuming I’m right on the first part of this blog then it is clear to me that landlords should avoid taking more than 7 weeks rent as a deposit like the plague. There are, however, circumstances where landlords might want to take more.

The first example is where a guarantor is prepared to pay a larger deposit to encourage a landlord to provide a home to a prospective tenant whom they would otherwise decline. If the guarantor pays a bond, does this count as a Premium Tenancy?

What if a tenant wants to pay rent in advance? I’ve heard a few stories over the years about landlords who have had a tenants who are on the verge of being able to claim benefits but their savings are over the threshold. Their answer to this problem has been to agree to a reduced rent for an agreed period on the basis that they pay a larger amount up front. This allows the tenant to reduce their savings to a point where they can claim benefits. Does that scenario create a Premium Tenancy? There is also a question over whether this could be benefit fraud.

I have other questions too. For example, if a tenant pays six months rent up front has a Premium Tenancy been created? Instinctively I suspect it has on the basis that anything more than one months rent in advance could be seen as a deposit. I’ve heard stories of landlords renting to Mr and Mrs Perfect who pay 6 months rent up front. When the landlord visits the property he finds a whole tribe of others living there and no sign of Mr and Mrs Perfect. Save for shopping the tenant to the local council for operating a potentially unlicensed HMO it would seem there is very little the landlord could do other than to serve two months notice on expiry of the tenancy. What state might his property be in though? If his tenant is subletting as an HMO what are the implications for the landlord in respect of licensing, insurance etc.?

I know it’s unlike me to create a blog which asks more questions that it answers but I am really keen to debate this topic and to learn something new.

You may have some questions of your own so please post them here and hopefully somebody in the know will appear and answer all of our questions and point us to the relevant sections of law for verification. That way, we will all learn something and we will have created a useful point of reference for anybody else like me who searches the internet hoping to find out what a Premium Tenancy really is. We may also learn how we can structure our arrangements for maximum protection of our investments and what the best practice is for a variety of circumstances which might create Premium Tenancies and how to avoid potentially unwanted outcomes if we get things wrong.

Please feel free to share this article with anybody who you know who takes more than 7 weeks rent up front or who maybe able to comment, either to ask questions or to provide answers which could help many other UK landlords.

Thanks in advance for your help.

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