I’d really appreciate some guidance and experience from fellow landlords as I have never had this situation before
If potential tenant offers to pay rent upfront for the full tenancy agreement (12 months) due to personal circumstances, which I understand:
Do I hold any risk, legal or otherwise?
If they decide to cancel the agreement, and want to move out before the end of the 12 months, presume I would owe them the difference and need to pay it back?
Is there anything wrong with taking payment upfront?
All credit checks are initiated and I have spoken to them and feel the potential tenant can be trusted. Although if they pay the rent upfront and as long as they don’t do any damage, what’s the risk?
I have found payments dwindle after so you may want to take a guarantor
I do take upfront payments from internationals
When you write the contract make sure the last month is paid as a month payment not as part of twelve months
That is 11 months and one month
Essentially all rent paid in advance is held in trust
If tenant leaves early you don’t have to refund money as the tenant is liable for the duration of AST ( periodic is a different matter)
When you serve a section 21 the notice period is dependent upon the rent payment frequency
Rent paid monthly notice period is two months etc
( slightly different because of pandemic )
If you take twelve months you would have to give 24 months notice ( notice expires after six months )… so you can’t serve a section 21!!
So write contract as 11 months and one month
It can all be paid in advance ( monies held in advance are held in trust )
Thank you, that’s helpful.
The tenancy agreement will only be for 12 months anyway, so there can’t be any notice, if that makes sense?
It is just tenant’s preference to pay the rent upfront instead of monthly - isn’t is almost like any other service, car insurance for example
In terms of holding the funds in trust - is that a legal requirement?
You don’t know what will happen after twelve months.
I’m covering the worst case scenario
You need to protect yourself if they don’t leave and they don’t pay further rent. In this situation you will need to have covered yourself if you need to evict.
Ensure the rent is documented as paid monthly in the contract and separate the last month and the eleven months as quantities ( it’s just covering the worst case scenario)
If you are not sure on how to word it take legal advice
If you are a member of NRLA or Landlord Law you can get clarification as part of your membership or speak to your solicitor
David Smith is reputable ( JMW)
We always refer back to our solicitor who wrote and updates our contract
The term held in trust is implied when a tenant pays in advance. It’s legal entity.
Unless there was a very good reason, it would ring alarm bells for me. Why do they want to pay so much in advance? What are their budgeting skills like? Is their regular month income sufficient to cover the rent?
I’m sure I read elsewhere that there are limits on how much rent you can take upfront (by months or monetary amount) before the legal nature of the tenancy agreement changes. Anyone?
I agree with you
I’ve had two offers in the last month but when you ask for references and a guarantor it falls through
I do take rent up front from
Internationals for the full ast as they usually don’t have a U.K. guarantor and your contract has no value beyond the border
Q. Can I ask a tenant to pay rent upfront if they don’t have a suitable guarantor or reference checks?
Yes. You could ask a tenant to pay their rent in a lump sum but should consider if this is necessary and affordable for the tenant. You cannot charge any more in an up-front lump sum payment than would have been chargeable over the fixed-term of the tenancy. For example, if the rent is £500 a month and the tenancy is for a fixedterm of six months, you cannot ask a tenant to pay more than £3,000 up front.
A tenancy agreement must not ask a tenant to pay more rent in the first month compared to a later period (the rent instalments should be split equally across the first year of the tenancy). You could reasonably ask a tenant to pay more than one rent instalment at the start of the tenancy but only where the tenancy agreement does not require this as a single rent payment. For example, if the rent was £400 per month, you could ask a tenant to pay three months’ rent upfront (3 x £400 = £1200), but the tenancy agreement could not make a tenant liable (responsible) to pay £1200 in the first month and then £400 every month after that.
’the tenancy agreement could not make a tenant liable (responsible) to pay £1200 in the first month and then £400 every month after that’
The clause you reference applies to not taking fees through rent, hence you can’t change the rent amount as a way to get round the TFA.
You can ask for rent for the full AST eg a twelve month AST at £500PCM. It is a well recognised practice on the academic circuit and for international students/ tenants. Rents are paid termly etc or in full. You state the PCM and state when each period is paid. This is not illegal.
In this case (the tenant has offered to pay upfront) I am not advising a method to avoid the TFA but not fall into the legal loophole that can be exploited by tenants to avoid being served a section 21 because the notice period of serving notice becomes moot.
You also have to be careful that it is clear in the tenancy agreement that the tenancy is monthly and the advance rent represents 12 x £x, otherwise you could inadvertently create a tenancy with a longer period. I still wouldnt do it.
Thank you for your comment.
Yes, this is exactly what my intention was - do the tenancy agreement through OpenRent for fixed term of 12 months and I remember there was an option how many months in advance they can pay (which would be 11, as the deposit and the first month are separate as per rules here).
Just to be clear, if the agreement is for 12 months and it is in the agreement that they will pay in advance all of it, in worst case scenario, would I still have issues if I have to evict? And would I still not be able to use the money (for mortgage payments on the property, for example)
Although, it sounded good at the beginning (getting a lump sum) but if 1) I’d be having potential legal issues and 2) I won’t be able to use the funds, what’s the point…
The guarantor has failed referencing due to unemployment (redundancy) and the potential tenant has issues with the reference link
I would avoid if there is an issue with the guarantor. A guarantor needs to have equity ( eg home owner or substantial savings etc).
Don’t use advance payment as a substitute for refences or guarantor. People think that paying in advance gets around this. It should not.
It’s become common in the pandemic. Tenants think it’s a good offering.
Personally I would not do it unless I mandated it. I am suspicious of tenants offering to pay up front. Others don’t mind.
‘Just to be clear, if the agreement is for 12 months and it is in the agreement that they will pay in advance all of it, in worst case scenario, would I still have issues if I have to evict? And would I still not be able to use the money (for mortgage payments on the property, for example)’
Eviction issues depend on how you word the contract ( eviction notice is dependent on interval of rent payment). As I wrote get legal advice so the last month is a month payment
During the pandemic you can’t evict for at least six months. There’s also a back log of cases and cases are prioritised on severity ( eg ASBO, significant rent arrears etc)
This is a time you need to urge on the side of caution.
If you don’t you could be stuck with a non paying tenant for a long time after
How much notice you need to give
Usually, a Section 21 notice must give your tenants at least 2 months’ notice to leave your property. Because of coronavirus (COVID-19) you must now give them a longer notice period.
If you gave your tenant notice between 26 March 2020 and 28 August 2020, the notice period must have been at least 3 months.
If you gave your tenant notice on or after 29 August 2020, the notice period must be at least 6 months.
In Wales, the notice period must be at least 6 months if you gave your tenant notice on or after 24 July.
In England, you may need to give a longer notice period if you have a ‘contractual’ periodic tenancy. This is a fixed term tenancy that has ended, but included a clause to continue as a periodic tenancy. The amount of notice must be the same as the rental period, if this is more than 2 months. For example, if your tenant pays rent every 3 months, you must give 3 months’ notice.
*( Get legal clarity on this. )
In Wales, if it’s a periodic tenancy, you must let your tenants stay for the notice period and any additional time covered by their final rent payment.
Thank you, I really appreciated your time and advice!
The guarantor has failed referencing due unemployment, and I am being told that the tenant has issues with the reference link (excuse in my eyes!)
They both claim to have hefty savings and properties to sell but as you say it’s too risky
Legislation has changed because of the pandemic.
Before the pandemic we had to give four months notice for a two month rent period but I can’t find that legislation for you .
The best thing is speak to your solicitor who has written your contract as they will be up to date with current legislation
There was information for tenant’s on CAB and shelter websites but I can’t find that either. It may have been updated because of the pandemic.
My problem with that is that I don’t want to be involved in such conversations frankly - I am not letting my property to learn other people’s life stories, if that makes sense
But equally, although there could be multiple reasons to have savings but not income, I don’t want to play detective and potentially support unintentionally unfair/illegal behaviour
The reality is if they have the savings, maybe it would be better to use them as a deposit to buy…
I understand but those conversations are what will protect you.
Our estate agents said yes to tenants but when I probed it wasn’t all it seems. To make that decision required enquiries, more than the estate agent are willing to do.
But… I ended up avoiding a headache