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Rent Paid in Advance is Not a Deposit – Johnson v Old

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Introduction

In April 2013 the Court of Appeal ruled in favour of the landlord in the case of Johnson v Old, concerning the question of rent paid in advance and whether it counts as a deposit requiring protection.

The case concerned a tenant, Ms Old, who, as a result of her inability to meet the landlord's credit and income referencing requirements, was asked to pay six months rent in advance for a six month tenancy. The tenancy continued for three terms, and then became a periodic tenancy. Shortly afterwards the landlord served a section 21 notice in order to regain possession.

The tenant, however, insisted that the payments of six months' rent should be treated as deposits that had not been protected, and that the section 21 was therefore invalid and she was entitled to compensation. A County Court judge upheld the tenant's claim, but this ruling was overturned in the Court of Appeal.


What does the ruling mean?

The Court of Appeal's ruling upheld the landlord's right to ask for six months' rent in advance and for it not to be treated as a deposit.

The Court posed the question of how the tenant would have reacted had they been asked to pay rent for one of the months covered by the six months that had already been paid. The Judge concluded the response would have been that the rent had already been paid.

The final part of the case focused on the question of whether or not the money had been properly protected - but, as the Court had already found that the money did not constitute a deposit, this was ultimately deemed irrelevant.


What does the case mean for landlords?

Johnson v Old has three main implications that landlords should consider.

•  To win the same argument it is vital that tenancy agreements are well drafted. Johnson v Old was complicated by a poorly drafted document. Had the tenancy been better written, it is likely that the case would never have gone so far.

•  Landlords are free to ask for several months' rent in advance, and this is a reasonable response in circumstances in which a tenant cannot pass credit referencing requirements.

•  Provided the tenancy agreement is correctly drafted and the payment is genuinely rent paid in advance, then is unlikely to be treated as a deposit, and it is therefore unlikely that it will need to be protected.


Case summary

The full report of the case can be read by following this link:

Johnson v Old – Approved Judgement