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Courts rule on rent deposits

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The brief facts of the case are that the Tenant paid funds by way of rent in advance to the Landlord at the start of the term.  The Tenant paid a total of 6 months rent in advance as a consequence of the Tenancy Agreement agreed by the parties.  It was agreed that those payments were to be used by the Landlord’s agent as the rental payments during the 6 month term of the Tenancy and were to be gradually used on that basis. 

The Tenant subsequently claimed that the payment represented a rent deposit or security and that the Landlord could not therefore proceed with Section 21 possession proceedings against the Tenant on the basis that they had not dealt with the security properly under the relevant statute and placed it in a deposit account. 

The Court of Appeal decided however that the funds paid by the Tenant did not represent a security or a rent deposit and represented a discharge of the current rental liability by the Tenant.  They were not paid across to the Landlord as security for the payment of a future liability by the Tenant.  They represented the discharge of a current liability (i.e. the obligation to pay rent) on the facts of this case.  In addition the Tenancy Agreement between the parties provided for the separate payment of a rent deposit by the Tenant and the Tenant had complied with that obligation separately.

On its facts as reported this seems to be a sensible decision confirming the intention of the parties at the time that the Lease was entered into.  It does clarify an area which was otherwise providing concern for Landlords dealing with rental properties let out to private individuals.

If you have any questions relating to residential or commercial Landlord & Tenant Law please contact Michael Callaghan on 01245 228136 or callaghanm@gepp.co.uk

This is not legal advice; it is intended to provide information of general interest about current legal issues.