Friday, September 21, 2007

Two months rent in advance is not the same as a damage deposit

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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When I wrote about tenancy deposit protection avoidance earlier this year, I did not mention one other option which I understand is being taken up by many landlords – that of taking no deposit, but two months rent in advance instead of one month.

Although there is nothing wrong with this, and superficially it seems the same, as very often the tenant will be paying the same amount of money in advance, in fact the landlord will not be protected against damage in the same way as he will by taking a damage deposit. This is because the money will be paid as rent.

The significance of this is that money paid as rent cannot, technically, be used for dealing with damage. That is not its purpose. So with a six month tenancy the tenants will pay no rent in the last two months. They do not have to – it was paid in advance. However, if they then leave the property in a mess, the landlord will have no fund of money to deal with it. In fact it is probably more likely that the tenants will leave the property in a mess. As they are not at risk of losing their damage deposit there is no reason why they should bother overmuch about the condition in which the property is left.

Better for landlords to bite the bullet and take a deposit, in my opinion. The custodial scheme, for example, is free of charge, everything can be done via the internet, and the tenants will know (as the money is being held by the scheme administrators) that their money is safe. Where is the problem?

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4 comments:

Anonymous said...

The problem is the lack of control. Someone else is holding the money and who knows what their view of damage is likely to be?

Quis custodiet ipsos custodes?

After all, they will bring their own biases into their work, and it seems to be the fashion to take more care of the offender than the offended.

Quite simply I do not trust them.

Anonymous said...

I find it extraordinary that so many landlords seem to view tenants as "offenders" - when in the past the law has done very little to protect the rights of hard-working honest tenants. I've been a private householder for more than 25 years but had reason to rent short term twice when I moved house. The first landlord was reasonable, co-operative, attentive and honest. The second was out to make a buck at whatever cost and withheld my £750 deposit because the paint he instructed me to buy to cover a couple of minor scuffs from furniture (perfectly normal wear and tear over a 10 month tenancy) was not an exact match! when I called his bluff and offered to discuss it in court (very publicly, might I add - I am a journalist) he backed down faster than you could say month in advance!
So many landlords see tenants not as a business client - which is what they are in actual fact - but as an "object" out of which they can cream as much cash as possible. Appalling injustice! And now because the law is saying this is the tenant's money, you have to justify what you have done with it, there's this outrageous outcry from the poor, badly-done-to money-making property owner. boo hoo

Sean said...

I've been a landlord, with my own 20 properties, for the past 5 years now.

I've decided not to subscribe to the tenant's deposit scheme but to take 2 or 3 months rent in advance, which is clearly worded in my ast contracts.

My reasons are:
I need the working capital - i.e. I need the money sitting in my bank and not the deposit scheme.

You may argue that I would be exposed when the tenant comes to leave and their last month (or 2 momths) are free of rent, having paid in advance on day 1 - however what Ive found is:

1. Those tenants that paid their rent on time also looked after the property and left it in a good state.

and

2. Those tenants that did not pay on time - well, I had their deposit in my bank assisting my cash flow when they did not pay - and if they damaged my property then I was covered by malicious damage insurance - the deposit left by a bad tenant would be swallowed up by missed rent and not go anyway to paying for the damage.

The biggest exposure for a landlord is not being paid - so I advice that you take out rent insurance for the 1st 6 months - after which section 21 can be used to evict on an accelerated procedure with no need to go to court.

Any advice just drop a reply.

Tessa said...

Can people please note my more recent post here which states that taking rent in advance instead of a deposit may be risky, and inadvisable now, in view of a new case.