Advance rent payment not a tenancy deposit, sheriff rules

Payment by the tenant of a flat of the first and last month's rent in advance, in terms of the lease, did not constitute a tenancy deposit within s 120 of the Housing (Scotland) Act 2006, a sheriff has ruled.

Sheriff Lorna Drummond QC gave the ruling in an action by Keshia Cordiner against her former landlord, Gassan Al-Shaibany, seeking declarator that the defender had failed to pay a tenancy deposit into an approved scheme, and payment to her of a penalty in terms of the Tenancy Deposit Schemes (Scotland) Regulations.

The pursuer had entered into a short assured tenancy of a flat in Dundee owned by the defender, from 1 October 2013, at a rent of £525 a month. Under the lease, the rent for the first and last month of the lease was payable in advance. It also provided that the pursuer was under no obligation to pay a deposit. The pursuer made the payment required at the outset. The lease was terminated by agreement from 11 August 2014. The last monthly payment of rent made by the pursuer was for June 2014, and owed the defender £195 in rent at the end of the tenancy.

For the pursuer it was argued that the advance payment was a sum held by the defender in security for the fulfilment of an obligation under the lease. The lease might continue for years. In some circumstances the landlord was entitled to terminate the lease on seven days' notice. The defender was an experienced landlord who was deliberately trying to get round the deposit regulations.

Sheriff Drummond said she found the reasoning of the similar English case Johnson v Old (2013) persuasive. The payment of rent was itself the performance of an obligation and not a payment “held as security” for the performance of any of the tenant's obligations in terms of s 120. There was no evidence to suggest it was performing any such purpose, and no significance in the fact that no deposit was otherwise payable – a landlord did not have to demand one.

She added that had the payment been held to be a deposit, the penalty imposed would have been at the lowest end of the scale, as the defender was not frustrating the scheme to the tenant's prejudice and his understanding that he had not received a deposit was not an unreasonable or irrational one. A fair penalty would have been £100.

Click here to view the judgment.