Rent in advance not a deposit, Court of Appeal rules

Rent paid in advance does NOT count as a deposit, the Court of Appeal has ruled.

The landmark ruling means that landlords and agents are not obliged to treat rent paid in advance as a deposit which requires protection under the Housing Act 2004.

The Court of Appeal’s decision was in the long-running case of Johnson v Old, where the tenant was offered a six-month tenancy and – because she did not have a set income – was asked for six months’ rent in advance.

The agreement in the case provided a muddling factor, because it said the rent should be paid monthly in advance, but also said that the rent should be paid six months in advance.

The tenancy was renewed on the same terms before becoming a periodic tenancy where the rent was paid monthly in advance. When the landlord tried to serve a Section 21 notice to gain possession of the property, the tenant, Anne Old, countered by saying that a Section 21 could not be served because she had paid rent in advance which should have been treated as a deposit and protected.

The tenant’s argument was successful at the first hearing, but was then challenged successfully by the landlord at a second. The tenant appealed, and with the help of legal aid, the case then went to the Court of Appeal, which gave its decision this week in favour of the landlord. 

The Court of Appeal had applied the test of asking how the tenant would have responded had she been asked to make a further payment of rent for one of the months covered by the six months. It decided that the tenant would have said she had already paid it.