What is a tenancy deposit?

In our previous blog posts, we have warned of the pitfalls in a landlord failing to comply with the requirements relating to tenancy deposits i.e. the ability of a tenant to bring a claim against the landlord for the value of the deposit, plus compensation of between one and three times the deposit.

But what is a deposit? We have seen a number of tenancy agreements where it was agreed that a tenant would pay, say, two months rent in advance on starting the tenancy; and then pay their rent monthly as normal. The rent paid in advance is not taken as a deposit and therefore it is not registered with one of the approved tenancy deposit schemes.

Is this legitimate, or would the Courts see this as a flagrant attempt by a landlord to evade the tenancy deposit requirements?

This remains something of a grey area one which has been raised in the case of Johnson v Old, heard in Brighton County Court recently.

Firstly, some law under s.212 of the Housing Act 2004, a tenancy deposit is any money intended to be held as security for the performance of any obligations of the tenant, or the discharge of any liability of his arising under or in connection with the tenancy.Rent in advance may well be considered to be this.

In Johnson v Old, the tenancy agreement provided for 6 months rent being payable in advance; but also had a further clause stating that rent was payable monthly. The tenant argued that the 6 months rent in advance constituted a deposit the Judge at the first County Court Hearing agreed.

The Landlord appealed to a Circuit Judge on the facts, the Judge decided that the 6 months rent in advance did not constitute a deposit.

One set of facts, two Judges, two diametrically opposed decisions.

The tenant is now attempting to have the matter referred to the Court of Appeal.

Clearly, this isn't going to be the last of this particular matter and if the Court of Appeal are to make a decision, its effect will be significant. Landlords are advised to watch this space.