Background to the case
The case stemmed from an initial decision by a Deputy District Judge that successive payments of six months rent up front made by Ms Old, the tenant, were in reality deposits. As the landlord had failed to protect them, this prevented the Landlords Mr Johnson, Mr Wood and Mr Howell, from being able to serve a valid section 21 notice. The matter then went to appeal on the 31st July 2012, where the decision was overturned by His Honour Judge Simkiss, saying that the payment was rent and not a security. Ms Old had secured legal aid which allowed her to take that decision to the Court of Appeal.
The Court of Appeal decision
The leading judgment was made by Sir John Chadwick and upheld the decision of HHJ Simkiss, much to the relief of landlords everywhere. The appeal was in three parts: first looking at whether the tenancy agreement required the tenant to pay six months rent in advance.
The appeal judges maintained that it was correct to hold that, read as a whole, the May 2010 tenancy agreement between Johnson and Old did require that the first six months’ rent be paid in advance on or before 1st May 2010. The judgement went on to point out that there are various ways of dealing with the perceived risk that a tenant whose credit references may be inadequate will not pay their rent month by month – one of which is to require payment of the rent ‘up front’.
The fact that a landlord chooses to deal with any risk in this way (rather than taking a guarantee or a rent deposit for example) is no reason for refusing to give effect to the terms of the tenancy agreement.
The second ground for the appeal was the allegation by Ms Old that the payment was actually a ‘security’ or deposit. The Appeal Judges did not accept this argument either, stating that money paid in order to discharge a current liability is payment of that liability and not security. The liability is discharged by the payment itself, so there can be no need to provide security for the discharge of that liability in future.
The third ground of appeal was that the landlord had failed to comply with the tenancy deposit regulations with respect to the payment. However as the court had already held that this was not a deposit, there was no need to consider this. So the landlord won, and the threat of having to pay back 18 months worth of rent to the tenant plus a penalty of up to three times that sum was removed – not just from Mr Johnson but from all landlords in future.
Linda was obviously delighted with this result and maintained that the Court of Appeal had applied bit of common sense in this case. Lots of landlords take payments up front from tenants who fail referencing. If these payments were all at risk of being treated as a deposit, all sorts of problem would ensue.
However, she added: “What this case does show is that landlords and their agents need to take care when drafting their tenancy agreements. We weren’t involved in drafting the original tenancy agreements in this case, but if it had it been a bit clearer this litigation could probably have been avoided. Tenancy agreements do need to be written so that ordinary people will be able to work out what they mean, but it’s essential that they are also legally and linguistically precise so there is no room for misinterpretation of misunderstanding.”
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