Landlords will be very well aware that if a deposit is taken from a tenant it must be protected. If not the landlord will face serious financial consequences and may not be able to gain possession of the property. One of the penalties of failing to comply with the rules is that Section 21 notices to quit are ineffective. Brighton County Court recently had to decide whether rent paid in advance counted as a deposit and therefore needed protecting or whether it was outside the scope of the protection scheme.
A tenant paid a deposit but also paid six month’s rent in advance. The agents protected the deposit but did not protect the advance rent. When the landlord tried to re-gain possession the tenant argued that the landlord was in breach of the deposit protection rules. If the tenant had won the case it would have had serious repercussions for landlord insurance clients. There are many reasons for taking rent in advance and often it is the tenant who, for convenience suggests it. On appeal it was held that rent paid in advance is not a deposit and so a possession order was given to the landlord.
This is a complex area and if you are taking rent in advance it is essential that you and your agent fully understands the law. A deposit “dressed up” as rent in advance will almost certainly fall foul of the rules.