Upfront rent payments are common practice for landlords and letting agents to implement before a tenancy starts. However, this may change under the Renters (Reform) Bill.
As the Renters (Reform) Bill moves through the House of Lords, nuances of the bill are coming to the forefront. One area that is affected is the move to rolling tenancy agreements, which may affect letting agents take upfront rent payments.
This was one of the many topics of discussion in Goodlord’s recent webinar: Experts react to the Renters (Reform) Bill third reading. Oli Sherlock Managing Director of Insurance at Goodlord, and Ryan Heaven, Associate Solicitor at Dutton Gregory, discussed all the aspects of the bill before it turned into law.
As part of the Renters (Reform) Bill assured shorthold tenancies (e.g. contracted tenancies of 6, 12, 18, 24 months) will move to assured tenancies. This means rolling tenancy agreements, with no fixed end date.
One of the new amendments to the Renters (Reform) Bill that states a landlord or letting agent can no longer require a tenant to pay any upfront rent for their tenancy agreement. But what does this mean? Here is everything letting agents and landlords need to know about this amendment:
- What are upfront rent payments?
- What is the new amendment regarding rent payments?
- Does this affect frontloading in the Tenant Fees Act?
- What if a tenant wants to be ‘in credit’ with their rent payments?
- How does this amendment affect student lets?
What are upfront rent payments?
Before a tenant moves into a property, landlords and letting agents may make it a requirement that tenants must pay more than a month's rent. This is especially common for renters that live abroad, to prove they can live in a property.
In most cases, a landlord and letting agent may ask for one month's rent before the tenancy agreement is signed. However, a landlord or letting agent may also ask for more if a tenant has a poor credit history, cannot provide a guarantor or only just arrived in the UK recently.
This increase in advance can range from quarterly, six-monthly, or annual rent payments.
This is separate from a holding deposit or tenancy deposit, and currently, there is no legal limit on how much a landlord or letting agent can ask for. It is also different to landlords or letting agents frontloading tenants at the start of the tenancy as mentioned in the Tenant Fees Act.
What is the new amendment regarding upfront rent payments?
As an amendment included in the Renters (Reform) Bill, there is a change to how much a letting agent or landlord can charge for upfront rent payments.
While previously there was no legal limit on how many months rent could be required, now the most rent a letting agent or landlord can take is either 28 days or a month.
This also counts if a landlord is renting to a student and wishes to charge termly payments, they can no longer ask for this payment.
One of the consequences of this amendment is that even if a letting agent wishes to rent a property to a tenant with a poor credit history, they can no longer guarantee the rent will be paid through a six-month advancement in rent.
Ryan Heaven says “The rules as written are saying that you can only have these rental periods of 28 days or a month at most”.
Does this affect frontloading in the Tenant Fees Act?
There are questions about whether these upfront rent payments contravene “front-loading”, which is a prohibited action from the Tenant Fees Act.
According to the Act, “front loading” is where a landlord asks for a higher rent at the first few months of the tenancy or before it starts. This form of payment is prohibited only when a landlord or letting agent tries to take more payment at the start of the tenancy, and change the payments throughout the agreement.
The way letting agents and landlords can get around this is if they are not taking a bulk payment, but instead 12 separate instalments of monthly rent.
However, this is still a loophole and may not always be the case as the Renters (Reform) Bill develops.
Download our info sheet for Your guide to the English Tenant Fees Act
What if a tenant wants to be ‘in credit’ with their rent payments?
Despite this new amendment, Ryan Heaven suggests there may be some loopholes that a landlord and letting agent can use to swerve this.
As Ryan says “The law is written doesn't necessarily prevent a tenant from being in credit. So if you sign a tenant up to a monthly rent and they just happen to overpay…there’s no law against a tenant being in credit for their rent”.
The main loophole is that there is nothing to stop a tenant from wanting to be ‘in credit’ to their landlords.
It is not prohibited that letting agents and landlords can’t take a rent repayment in advance, they just can’t make it a requirement as part of their letting agreement.
There is no part of these amendments that says taking upfront rent payments is prohibited if a tenant wishes to pay.
However, it is a grey area at the moment, which is unhelpful for letting agents, landlords and even tenants.
We all are seeking certainty and whilst we have a little more certainty on elements of the Renters (Reform) Bill, there are still parts that need more clarification.
Letting agents and landlords should stay up to date with this amendment to make sure they are being compliant.
Watch our Experts React webinar for the The Renters (Reform) Bill third reading
How does this amendment affect student lets?
Previously, letting agents and landlords may have asked for a year's worth of rent upfront for student lets, but this can no longer be the case with the new amendment.
This may have a big effect on foreign students without a guarantor, as the only thing that letting agents and landlords can do is hope the students pay their rent every month.
Even if a foreign student does have a guarantor, the practicalities of enforcing against an overseas guarantor are that it's prohibitively expensive and difficult to do.
The only thing that letting agents and landlords can do, now that they can’t require rent to be paid upfront and in advance for longer than a month, is to be incredibly quick in your response if a rent payment is missed. However, once a student has left the country or property, the prospect of recovering any rent is basically nil.
Oli Sherlock says in our webinar: “The point of the bill was to make a fairer private rental sector and give tenants a better standard of living…making the playing field more level between tenants and landlords. However, stuff like this amendment is limiting potentially accessible people to property, not encouraging it”.
This article is intended as a guide only and does not constitute legal advice. For more information, visit gov.uk.
