Latest in LettingsIssue 11
Rent Paid In Advance
1. The Practice
It is now common practice for agents to accept 6 months' rent in addition to the normal deposit in cases where a prospective tenant is unable to pass a full reference test acceptable to agent and landlord.
- Retirement: individuals living on their savings and/or modest pensions but who cannot provide proof of income to cover rents due
- Self Employed: those who may well have a good income, but do not have formal accounts that will prove that income
- New Businesses: owners and directors of newly established firms which have not been trading long enough to provide two years audited accounts
- Non Residents: those who return to the UK after long periods working overseas and foreign nationals arriving in the UK to take up employment, training and including foreign students attending universities, training and language courses
2. DUTY OF THE AGENT
Since average rents now commonly range from £650 - £1,000 pcm the sums involved are substantial. Agents must therefore take every reasonable step to safeguard the tenant's money and ensure that the tenant is aware of the risks when full protection is not available.
3. RISKS TO THE TENANT
Landlords will intend to act in good faith, but accidents and misfortune will occur that may result in a tenant losing possession of the rented home and the balance of rent paid in advance.
Examples Include:
- Landlord lets property when already in arrears with mortgage repayments. Lender exercises an existing Order for Possession suspended while regular payments are made. If payments lapse the Order can be enforced at short notice.
- Landlord falls into arrears through misfortune, sickness, accident, redundancy etc and has not obtained lender's permission to let. Lender may attempt to end the tenancy.
- Damage to the property through fire, storm damage, etc. so that the property becomes uninhabitable in whole or in part.
An honourable landlord will wish to repay rent that is effectively overpaid but may not be in a position to do so.
4. BEST PRACTICE
Rent paid in advance should be held in the agent client account and paid over monthly. The rent would then be protected apart from the amount that may be lost if misfortune occurs in the first, second or third week of any month.
An Addendum (as a separate document headed This Addendum forms part of the Tenancy Agreement to which it is attached) or a Special Clause should be included in the Tenancy Agreement. Both forms of documentation to read:
The landlord and the Tenant agree that the rent paid in advance shall be held in the agent's client account and released to the landlord on the due dates being the (date) of each month commencing on the (date of month and year)
5. LANDLORD INSISTS ON RECEIVING ALL RENT PAID IN ADVANCE
The position must be clearly explained to the tenant so that he is aware of the potential risks that may happen should misfortune occur.
A disclaimer to be signed and dated by the tenant should be attached to the Tenancy Agreement written in the following format:
RENT PAID IN ADVANCE
In respect of the tenancy of (Property address) I (tenant's name) have agreed to pay the sum of £( ) being equal to six months' rent for this property.
I understand that this sum is to be paid in full to the landlord on signature of this Agreement, therefore should I not be granted the full benefits of occupation of the property, I have recourse to the landlord only for any rent paid in advance that should be refunded to me.
(Agent's name) has explained the position to me and the risks involved.