The Renter Rights Bill now includes significant new clauses that will prohibit the payment of rent in advance and pre-tenancy rent payments.
The new rules added to the Bill at the report stage on the 14th January 2025 affect every landlord, not just those who ask for large sums at the start of a tenancy.
The new clauses will also change how landlords and letting agents handle the initial rent payment.
These new rules introduce unnecessary complications to new tenancies. We will look into how the Renters Right Act will affect the industry with the current wording.
NOTE: The rules are subject to change as they are reviewed in parliament.
- Prohibition of pre-tenancy rent payments
- What is a prohibited pre-tenancy payment?
- Restrictions about pre-tenancy rent payments
- What is a “relevant person” for the purposes of the Tenant Fees Act?
- New rules about the payment of the “initial rent”
- What is the “initial rent”?
- The permitted pre-tenancy period for initial rent payments
- The restrictions on the length of rent periods
- How will landlords and agents need to handle payment of initial rent?
- The banning of lump sum payments of up-front rent in advance
- Banning of payment of rent in advance during a tenancy
- What if a tenant pays rent early during a tenancy?
Prohibition of pre-tenancy rent payments
Clause 10 of the Renters’ Rights Bill bans pre-tenancy rent payments by adding “prohibited pre-tenancy payment of rent” to the list of prohibited payments in paragraph 1 of Schedule 1 of the Tenant Fees Act 2019 (TFA). It currently classifies “payment of rent under a tenancy” as a permitted payment.
If a landlord or letting agent accepts a prohibited pre-tenancy payment of rent, they will breach the TFA and can receive a financial penalty from the local authority.
What is a prohibited pre-tenancy rent payment?
A pre-tenancy rent payment for an assured tenancy will be prohibited under the TFA if the rent is “payable before the tenancy is entered into”.
A tenancy is entered into when both parties have signed the agreement, and there has been some sort of consideration paid by the tenant. For instance, the tenancy deposit. (As an aside, not all landlords take a tenancy deposit, so I’m not sure how a tenancy can be considered “entered into” if there is no consideration).
The payment of a holding deposit or a tenancy deposit before the tenancy is entered into will not be prohibited, and the holding deposit can be used to pay the initial rent due in the “permitted pre-tenancy period”.
Further restrictions about prohibited pre-tenancy rent payments
The new rules are very strict and Section 5 of the Tenant Fees Act 2019 will be amended to include the following anti-avoidance wording (that echoes the wording regarding the banning of rental bidding):
- Landlords and letting agents must not accept a prohibited pre-tenancy payment of rent from a “relevant person” (see below).
- Landlords and letting agents must not “invite or encourage” a relevant person or accept an offer from a relevant person to make a prohibited pre-tenancy payment of rent.
- Landlords and letting agents cannot use third parties to get around the rules as they cannot accept from a third party a prohibited pre-tenancy payment of rent. They also can’t “invite or encourage” a relevant person to make the payment, or accept an offer to pay the rent to a third party,
Landlords and letting agents will be liable to a financial penalty if the local authority is satisfied beyond reasonable doubt that they have breached these rules.
What is a “relevant person” for the purposes of the Tenant Fees Act?
The Tenant Fees Act defines “relevant person” as a tenant or “a person acting on behalf of, or who has guaranteed the payment of rent by, a tenant”.
The new rules about the payment of the “initial rent”
What is the “initial rent”?
The initial rent is rent that is payable for the first rent payment, or “any later rent period which ends during the initial 28 day period”.
The initial rent must not be more than the rent of a rent period, and the reference to the initial 28 day period is to allow the first period to be a shorter length to align with (say) the pay day of the tenant or to allow portfolio landlords to have all rent payable on the same day of the month.
At present, it is usual to change the rent payment day by adding the extra days to the first month, so that the tenant pays more in the first month (this is how OpenRent do it). This will no longer be available, and landlords will only be able to have a shorter first month.
The permitted pre-tenancy period for initial rent payments
Whilst landlords and letting agents will not be able to accept the “initial rent” before the tenancy agreement is entered into, they will be able to accept it during the “permitted pre-tenancy period”.
The permitted pre-tenancy period starts when the tenancy is entered into and ends with “the day before the first day of the tenancy”.
Therefore, landlords and letting agents will be able to ask for and receive from the tenant the initial rent from the tenant during the permitted pre-tenancy period.
The restrictions on length of rent periods
An integral part of the new assured tenancy in the Renters’ Rights Bill is that a rent period cannot be longer than one calendar month. Any terms in tenancy agreements that require tenants to pay rent for more than one calendar at a time will be null and void after the Renters’ Rights Act comes into force.
This means that landlords won’t be able to have clauses in their tenancy agreements that state a rent period is on a quarterly or termly basis, say for students. If there is a clause like that in the tenancy agreement, it will be null and void.
This also includes terms in existing agreements and longer rent periods will change to rent periods of no more than a calendar month.
How will landlords and agents need to handle payment of initial rent?
Landlords are going to have to be very careful about when they ask for the initial rent, ie the first month’s rent to be paid, and when they accept pre-tenancy rent payments.
Landlords will not be able to ask the tenant to pay the first month’s rent before the landlord or agent sign the tenancy agreement as that will be a prohibited pre-tenancy rent payment.
They can, however, ask for the tenant to pay the rent in the permitted pre-tenancy period after the agreement is signed and before the start of the tenancy.
However, if the tenant then doesn’t pay the first month’s rent before the move in date, the landlord may still be bound to allow the tenant to move in, even though they are already in arrears. (Update: I know some solicitors are looking into the possibility of “conditions precedent” so the agreement will be “entered into” but not fully “in force” until the initial rent has paid, and there are arguments about whether the tenancy deposit is “consideration”, but it’s always a risk to rely on these sorts of work-arounds).
The landlord will be able to set off the holding deposit against the first month’s rent.
This means the tenant on-boarding process will need to change and look something like this, if the Bill isn’t amended:
- Tenant pays holding deposit of one week’s rent and agrees to apply it to the first month’s rent.
- Tenant referencing, landlord agrees to let the property to tenant.
- Tenant signs tenancy agreement and pays tenancy deposit.
- Landlord signs tenancy agreement.
- Tenancy agreement has now been “entered into”, so this is the “permitted pre-tenancy period” when landlord can ask tenant to pay the initial rent.
- Tenant pays the initial rent (less any holding deposit paid).
- Tenant moves into the property on the first day of the tenancy.
I hope they change the wording so that the initial rent can be paid at any time by the tenant, so long as it’s not for more than one calendar month (assuming that is the rent period).
The banning of lump sum payments of up-front rent in advance
The new clause 9 inserts a new Section 4B into the Housing Act 1988 which prohibits terms in tenancy agreements that provide for the payment of rent in advance once the agreement is entered into, other than the initial rent.
This ban includes up-front lump sum payments, for instance the first six months, which landlords sometimes ask people to pay if they don’t have a good credit history, or if they are new to the country.
This will make it riskier for landlords to let to foreign students or tenants without a good credit history, and they won’t be able to accept an up front rent payment from a local authority to (for instance) house someone in temporary accommodation.
Banning of payment of rent in advance during a tenancy
Clause 9 states that any terms in a tenancy agreement which state that rent is due in advance are to have no legal effect. However, they will not breach the Tenant Fees Act.
The definition of rent due in advance is rent that is “due before the rent period for which it is payable”.
For instance, if a rent period is from the 26th of one month to the 25th of the next month, the earliest the rent will be “due” is the first day of a rent period, ie 26th of the month.
What if a tenant pays the rent early during a tenancy?
Sometimes tenants pay rent early voluntarily, for instance if rent is due on Boxing Day, they may pay it on Christmas Eve.
It won’t be a breach of the Tenant Fees Act for a landlord to accept an early payment, as it’s after the tenancy agreement is entered into.
However, tenancy agreements will not be able to contain provisions which require a tenant to pay rent before it is ordinarily due, and it cannot be due before the first day of a rent period.
Final thoughts
These new rules regarding the payment of rent in advance and the initial rent are very complicated. No doubt landlords and agents will be looking for loopholes to try to get around the rules.
Let me issue a note of caution. There will be test cases, and litigation is not something to be taken on lightly. Not only is it expensive, but it is also time-consuming and stressful.
The Bill contains wording that allows (for instance) the Secretary of State to amend Section 4B of the Housing Act 1988 by regulation “for the purpose of making provision about the descriptions of rent due in advance”.
Our advice (and note this disclaimer), is to keep within the spirit and intent of the law unless you have deep pockets and enjoy spending time with expensive lawyers.
