Property Litigation Expert Welcomes Ruling

By Rob Dixon

Landlords, their agents and their tenants will be pleased by the clarification that a recent Court of Appeal ruling has provided on the question of whether substantial upfront rental payments should be treated differently to deposits, according to a property litigation expert.

The case of Johnson v Old related to a case when a tenant paid six months of rent in advance to a landlord. In the original ruling, it was decided that the rent should be treated as a deposit and the landlord could therefore not end the tenancy unless it held the monies paid in accordance with the strict laws on the holding of deposits.

The decision was appealed and overturned last year, with the court deciding that the payments should not be treated as a deposit. This latest ruling has upheld this view.

Commenting on the case, Danny Revitt, a Partner and specialist in property litigation at Irwin Mitchell, said the case would bring much-needed clarity to the area of when payments should be treated as security.

He explained: “If the rules on the treatment of deposits on residential tenancies aren’t complied with, then a landlord cannot take any steps to regain possession of such a property. This includes serving notice to end a tenancy as the term comes to a close – regardless of whether there are any arrears.

“In some cases like this one, rather than taking a deposit, landlords may ask for a number of months’ rent in advance. While the tenant tried to argue this was a deposit, it was decided the money was not and the landlord had no obligation to follow the statutory procedures in relation to deposits.

“While the case will be seen as a welcome one by landlords, it also provides clarity to tenants over what they can expect when they enter an agreement to pay rent in advance as opposed to making a deposit.

“Many landlords with large portfolios don’t like committing resources to complying with the deposit rules and so we are likely to see more landlords choosing to request payments of a few months rent in advance rather than asking for deposits.”

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