Rent in advance vs deposits

Our Latest Blogs

Eddie Hooker, mydeposits CEO, shares his thoughts on taking rent in advance instead of a deposit.

I’ve followed the recent news discussions in Jersey about taking advanced rent versus taking a deposit with interest, so before I share my thoughts it’s worth a quick recap on the purpose of the law.

Why was TDP introduced?

Tenancy Deposit Protection has been introduced by the States of Jersey as part of number of measures aimed at improving the rental sector. Landlords unfairly withholding deposits has long been a reported issue throughout the UK and Jersey, with figures from the Jersey Citizens Advice Bureau (CAB) suggesting that almost 10% of all housing issues relate to rental deposit disputes. The positive news is that there’s plenty of evidence to suggest that deposit protection has helped improve rental standards when it has been introduced in other parts of the UK, taking issues of deposits off the table.

Rent in advance provides no protection for landlords

Landlords aren’t required to take a deposit from their tenant, but the majority choose to do so in order to protect themselves against any financial losses incurred during the tenancy.

Rent taken in advance does not need to be protected, because it isn’t a deposit. This might sound obvious, but this really is at the heart of the issue.
While it may not need to be protected, if you take rent in advance and not a deposit, there is no guarantee that you will be compensated for any losses at the end of the tenancy, should they occur. You cannot make deductions from rent, only from a deposit.

Taking a deposit makes good business sense and also incentivises tenants to end the tenancy properly and help ensure that they don’t just move out without first meeting the terms of the tenancy agreement.

Taking rent in advance instead of a deposit means that it won’t cover you should you experience common scenarios such as damage to the property or fittings, missing keys, cleaning issues, garden maintenance etc at the end of the tenancy.
However, if you do take a deposit, then you’re entitled to make deductions if you incur losses. Our experience across the rest of the UK points to a relatively low number of disputes (about 2% of all protected deposits) that require the intervention of the deposit scheme’s dispute resolution service. This means that it’s common for deposits to be returned by the scheme with deductions agreed by both landlord and tenants, and it’s in these instances where the landlord in Jersey who hasn’t taken a deposit could be out of pocket, or have to go via the Petty Debts Court to make their claim if the tenant refuses to cooperate.

Same argument

There were similar objections and ‘loopholes’ discussed when the law was first introduced in England & Wales back in 2007 but these have disappeared over time because landlords still view deposits as an important part of the renting process.
I hope our service is quick and easy to use for those landlords who plan to take deposits, and I also wanted to take the opportunity to reaffirm a couple of important points that have been raised recently:

Why do mydeposits hold deposit money off island?

All deposits held by mydeposits Jersey are kept securely in UK bank accounts, which means each individual deposit is protected by the Financial Services Compensation Scheme (FSCS). In the extremely unlikely event that a bank used by the Scheme fails, the FSCS is on hand to cover the deposit money return. Regulated UK banks have been chosen to hold the deposit money instead of Jersey banks because the Jersey Depositors Compensation Scheme only protects money deposited by individuals, and not money deposited on their behalf by a third party.

What about the interest on the deposits lodged?

Any interest generated on deposits is used to administer the scheme and pay for running costs. This is because the scheme must be self-financing and not rely on States of Jersey funding.

Currently due to interest rates being at a historical low of 0.5%, the States of Jersey have agreed we can use all the interest earned to fund the administrative costs of running of the scheme. We have also been given permission from the States of Jersey to charge a fee, taken from the tenant’s deposit, which is also set out in the Regulations. The Minister will keep both the use of interest earned and the fee under regular review. If interest rates rise steeply then changes may be made to the use of interest and administration fee.

Leave a Reply

Your email address will not be published. Required fields are marked *

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.