Member Article

Deposits have had their day, despite court ruling

A leading lettings agent has welcomed a court ruling that rent paid in advance does not count as a deposit, but feels the case is “a further nail in the coffin on the deposit”.

While describing the decision as “welcome clarification for tenants and landlords alike” Ajay Jagota of North East agents KIS Lettings – the only lettings agency to not ask tenants to provide deposits - believes the Court of Appeal ruling in the case of Johnson versus Old is “yet more proof that deposits have had their day”.

The Court of Appeal last week ruled in favour of the landlord in the long-running case meaning landlords and agents are not obliged to treat rent paid in advance as a deposit requiring protection under the Housing Act 2004.

The ruling relates to a case of a tenant who was offered a six-month tenancy and was asked for six months’ rent in advance due to their financial circumstances. The tenancy then was renewed on an ongoing basis on the same terms, with the rent paid monthly in advance.

When the landlord later attempted to gain possession of the property, they were prevented from doing so by a Country Court ruling that these advance rent payments should be treated as protected deposits, and that as such not only was a possession order invalid but the tenant was also entitled to compensation.

This decision was overturned at the Court of Appeal.

KIS, who manage properties for almost 700 landlords from across the North East from offices in Sunderland, South Shields and North Shields, are the only lettings agency not to ask tenants for a deposit, asking renters to instead nominate a guarantor – a home-owning friend or family member- to sign a legally-binding document accepting joint liability in the event of rent arrears or damage, and by using an exclusive landlord insurance product.

The system makes it easier to find tenants, by removing obstacles like costly move in fees, while also providing peace of mind and protection to landlords.

Managing Director Ajay Jagota said: “The court ruling is welcome clarification for tenants and landlords alike, but as far as I’m concerned it’s also a further nail in the coffin on the deposit.

“Deposit law is legal and administrative minefield, a complicated and confusing state of affairs which doesn’t benefit anyone - putting barriers in the way of good tenancies when the cost of pursuing claims or repairs in the case of serious arrears or damage often far outweighs the value of the deposit.

“Despite this ruling plenty of ambiguity still exists in the deposit system – where does this leave the common, if out-dated, practice of landlords accepting a tenant’s deposit as the last month’s rent of their tenancy for example? If you ask me, the Court of Appeal judgement is yet more proof that deposits have had their day.

“The judge in Johnson versus Old did however make one absolutely crucial observation. A better- written tenancy agreement would have avoided a lengthy and costly legal battle. That’s just one of area where good lettings agents provide a vitally-important service to landlords”.

This was posted in Bdaily's Members' News section by Ajay Jagota .