Six months rent paid in advance - are the risks mitigated?

[bdh198]

Does anyone have any experience of a tenant paying six months' rent upfront?

I have never let to a tenant on this basis before because of the risks involved, and have always treated a tenant who wants to pay upfront as an indication that the tenant is a risk.

However, with there no longer being the risk of the upfront payment being treated as a deposit following the Court of Appeal's decision in Johnson v Old (backed up with a clear tenancy agreement), and with a carefully drafted tenancy agreement permitting regular inspections to ensure nothing illegal is being carried out, is this a way of agreeing a tenancy that I should now be considering? It would have the benefit of avoiding the risk of a tenant in default.

In my case the tenant is a post-graduate student, and his father is the guarantor. The father is retired and has no regular income except for his pension. However, he has savings and wants to pay his son's rent from those savings upfront. My initial reaction was to be reluctant to consider upfront rent, but after considering the circumstances carefully I am starting to think it might have its benefits.

Are there any other risks I should be aware of in these circumstances?

[Richlist]

I nearly always refuse to accept 6 months rent in advance because it breaks one of my rules of renting ie it takes me out of my comfort zone and leaves me open to problems which I don't want.

If you do decide to accept 6 months in advance I would suggest that you leave the AST showing monthly payments and just issue a separate receipt for the 6 months payment. The danger with changing the AST to show 6 months payments is that then means the rental period becomes 6 monthly and you will be burdened with needing to provide at least 6 months notice to your tenant (ilo 2 months) when/if you want to terminate the tenancy.

Make sure the guarantor is a home owner. Savings will mean nothing in a couple of years time if he's spent it.

[Grampa]

There is an acceptable way to take rent in advance without causing problems.

If you take 6 months in advance without a correctly worded contract you are creating a tenancy where the rental period (not the fixed term) would be 6 monthly and not monthly which means you cant give 2 months notice via a s21.

So you adjust the wording to the following and this is based on of rent of £1000 pcm and 6k taken up front.

Fixed period 7 months 01.01.13 to 31.07.13 (1 month longer than the amount taken)

1st JAN 2013 TO 30th JUNE 2013 THE AMOUNT OF £6000

THEN ON 1ST JULY 2013 TO 31ST JULY 2013 THE AMOUNT OF £1000 AND THEREAFTER £1000 PCM PAYABLE ON THE 1ST DAY OF EACH MONTH

This method ensures the tenancy period is monthly after the fixed period and a s21 can be used as normal.

[Mortitia]

Solent - you need to be happy with the explanation of the father - have you met him personally? What happens if father and son fall out?

IME those who want to pay upfront have devious reasons for wanting to do so and like Richlist I won't entertain it.

I would issue a Section 21 notice soon after the tenancy starts to guarantee possession soon after the end of the 6 months.

Also make sure you have the guarantorship (is there such a word?) drawn up as a deed.

[Richlist]

Virtually all of the applicants that have ever offered to pay me a lump sum in advance have been self employed and unable to provide evidence of earned income over a sufficient period. They know that as a result they will not pass reference checks.

Therefore the lump sum has been offered in place of references.......I certainlly won't accept that.

Many landlords are blinded by this large sum of money and loose all the common sense and caution that they would normally exercise.

[Grampa]

I agree with the above and though we don't accept 6 months in advance very often we would still get a guarantor and check income etc etc which does upset some of them . But my argument is "how are you going to pay the rent in 6 months time"

[bdh198]

Thanks everyone for your advice and suggestions.

I haven't yet decided to go ahead with it, and I think I will certainly want to speak to the guarantor and find out why they want to pay a lump sum. If there is a good reason for the lump sum payment then I shall certainly make sure the contract is clear and avoids a rental period of six months.