Rent in Advance is Not a Deposit, Says Judge

The case of Johnson v Old is one that could have had a huge impact on landlords who take payment of a number of months rent in advance.

On serving their tenant with a section 21 notice, the tenant, Ms Old, argued that their 6 months lump-sum rent payments were, in fact, deposits, and should have been protected accordingly.  As they were not, this meant that the landlord, Mr Johnson, could not serve a section 21 notice.

In January 2012, Brighton County Court decided that the rent paid in advance should have been treated as a deposit, and upheld the claim that the section 21 was therefore not valid.

This was appealed in July 2012, and the decision was overturned, with HHJ Simkiss deciding that the rent was not a deposit, and therefore does not need to be protected as such.

Having secured legal Aid, Ms Old then took the case to the Court of Appeal.

The leading judgment was made by Sir John Chadwick at the Court of Appeal, who upheld the decision of HHJ Simkiss.

Landlords and letting agents are breathing a sigh of relief!

It has emerged that hundreds of landlords may have held off serving Section 21 notices pending the outcome of the case.

One firm alone, Landlord Action, has 200 clients who were in this position.

Paul Shamplina, of Landlord Action, said they had been nervous about initiating action for possession. He said: “The outcome of this case is great news for landlords. They can now go ahead with confidence, knowing where they stand.  We receive calls to our helpline daily regarding the holding of deposits and advance rents stated on many tenancy agreements. We are very pleased at the ruling and feel it will provide a much needed boost of confidence.”

Shoosmiths represented the landlord and its view on the complicated case comes after considerable debate as to whether the court ruling really did clarify whether rent in advance should, or should not, be treated as a deposit.

Linda Howard, from Shoosmith Access Legal’s team, managed the case all the way through to the Court of Appeal and says the judgement does clarify what was a potential loophole in the law that could have been very bad news for landlords.

She said: “We’re delighted with this result. The Court of Appeal has applied a bit of common sense in this case. Lots of landlords take payments up front from tenants who fail referencing. If these payments were all at risk of being treated as a deposit, all sorts of problem would ensue.”  She added: “What this case does show is that landlords and their agents need to take care when drafting their tenancy agreements.  We weren’t involved in drafting the original tenancy agreements in this case, but if it had it been a bit clearer, this litigation could probably have been avoided.  Tenancy agreements do need to be written so that ordinary people will be able to work out what they mean, but it’s essential that they are also legally and linguistically precise so there is no room for misinterpretation of misunderstanding.”

For the transcript of the case, click here

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