Here is a question to the blog clinic from Jon who is a landlord
We have an apartment with an agent. The apartment has been let and the agent has informed us that the tenant wants to pay 1 years rent in advance. Who keeps this money, is it the agent or the landlord?
Answer
The money will be paid as rent and so it will be your money not the agents although no doubt they will want to deduct their commission.
Sometimes agents will hang on to money paid in advance and will pay it over to the landlord on a month by month basis. However, there is no law that says they have got to do this. How they deal with money paid to them as rent will depend on what is set out in your agency agreement, so I suggest you read this.
If your agency agreement does not mention retaining money paid in advance then you can ask the agents to pay it all over to you now. It is after all your money, not theirs.
You may want to find out a bit more about these tenants though. Offering to pay a years rent in advance is often done by criminals who want to avoid proper referencing. Frequently they will then convert the property to a cannabis farm.
This may sound unlikely but it is actually very common.
So ask the agents for more information about the tenants and what checks they have done. You should also ask them to be extra vigilant in carrying out regular inspections.
From an agent’s perspective:
The guidance agents receive from bodies such as NFOPP is to transfer client money “as soon as administratively possible”. Unless you have agreed a float for maintenance costs, you should receive the full amount minus commission.
There’s also the question as to what the client money insurance provider will say when they see a portion of client money sitting in the account for a year. I can’t speak to that, but I think the accountant carrying out the audit might raise an eyebrow.
Finally, I want to second Tessa’s concern here RE: the fact that the year’s rent was paid in advance. There could be legitimate reasons for this. But there are many more reasons to be suspicious than not. Be careful.
Thanks for your comments and for the agents perspective!
Is there any risk to the LL of the tenant claiming that 11 months of that rent is a “deposit” and claiming a penalty? Or is that only a problem if, say, they paid six months in advance but paid monthly as well, starting from month one?
I recently saw a self-claimed high-end letting agent website in which they charge a holding fee (non-refundable), a rather hefty referencing fee and instead of a deposit they demand advance payment of the first and last month’s rent. I’m sure I read somewhere that the latter would definitely fall foul of deposit regulations.
It depends on the circumstances but if the money is treated as rent and no other rent payments are demanded for that period then it should be OK. See the case of Johnson v. Old https://landlordlawblog.co.uk/2013/04/23/court-of-appeal-decision-in-johnson-v-old-good-news-for-landlords/
Agents will have to be very careful with all fees after 1 June when the Tenant Fees Act comes into force.
I’ve been in more cannabis farms than I care to remember and in every single case I asked the landlord or agent if the tenants paid rent up front and in each case the reply was “Yes”