Rent in advance – why you shouldn’t accept it?

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Rent in advance – why you shouldn’t accept it?

We all know that the prohibition of rent in advance is going to make life really hard for tenants who, for whatever reason, can’t pass normal referencing and until now would have paid rent up front to get the place they want. So it’s natural that people are looking for ways to get around this. I think that’s a really dangerous thing for landlords to get involved in, and in this note, I explain why.

Basically, the Renters’ Rights Act 2025 controls when and how rent can be paid in advance, principally by making amendments to the Tenant Fees Act. (TFA).

For new assured periodic tenancies, the position is broadly as follows.

• Any “pre‑tenancy” rent payment (ie rent paid before the tenancy agreement has been entered into by both parties) is now a prohibited payment under the Tenant Fees Act.
• Landlords and agents must not “invite or encourage” a tenant, guarantor or other “relevant person” to make such a pre‑tenancy rent payment, and must not accept it if it is offered.
• The only lawful pre‑tenancy payments remain the holding deposit and the tenancy deposit, within the existing TFA caps; “initial rent” can only be taken in a short “permitted pre‑tenancy period” once the tenancy has been entered into.
• Any requirement in a new tenancy agreement that the tenant pays rent in advance (for example more than one month at a time, or before the first day of a rental period) is unenforceable.

Existing tenancies in place when the new regime starts can continue to operate on their current advance‑rent arrangements (eg 6‑monthly in advance).

One of the suggested avoidance routes is the payment of a lump sum rent in advance to a third party who will hold it in escrow, which basically means they hold it on trust with an explicit instruction to release it when certain conditions are met.

So the lump sum rent would be paid to an agent or a solicitor, someone like that, with instructions to release it in tranches, usually monthly, as each rent payment date comes up.

But the RRA is drafted with explicit anti‑avoidance language so that a landlord or agent cannot do indirectly, via a third party or escrow arrangement, what they are forbidden to do directly.

The prohibition applies to accepting a prohibited pre‑tenancy rent payment “from a tenant, guarantor or any other relevant person”. I know guidance isn’t supposed to have the force of law but in practice it does and it makes clear that paying rent to a third party (for example, an agent, an associate, or an escrow service) with instructions to release it to the landlord on rent‑due dates will still be treated as a prohibited pre‑tenancy rent payment if the money is rent and is paid before the tenancy is entered into or in excess of the permitted period/amount.

If a lump sum is not clearly rent for identified periods, there is a risk it is characterised as a tenancy deposit; any amount held as security above five weeks’ rent would then breach paragraph 2 of Schedule 1 to the Tenant Fees Act.

In short, routing rent via escrow or a third party before the tenancy is properly in force, or in an amount or timing that is not permitted, is treated as an unlawful attempt to circumvent the statutory restrictions.

As you might expect, given the government’s anti-landlord mindset, there are severe penalties for breach of these rules. Two types of penalty regime interact here: the TFA regime for prohibited payments and the general RRA civil‑penalty framework.

• A prohibited pre‑tenancy rent payment under the TFA can attract a civil penalty from the local authority of up to £5,000 for a first breach, rising to up to £30,000 for a further breach within five years, as an alternative to prosecution. So let’s assume your tenant sets up escrow payments and these start running. At some point you fall out with your tenant and they go to the local authority. If you’ve accepted 6 monthly payments from escrow then that’s you saddled with a £30,000 fine .
• Under the wider RRA enforcement framework, local authorities can impose civil penalties up to £7,000 for first or minor non‑compliance and up to £40,000 for serious or repeat non‑compliance, with the option in serious/repeated cases of criminal prosecution carrying an unlimited fine.
• Tenants and the local authority can also seek a rent repayment order for continuing or repeated breaches where the landlord fails to remedy the breach (for example, by not promptly returning a prohibited rent payment).

Always remember, local authorities now have a statutory duty (not just a power) to enforce “landlord legislation”, and they have a direct financial incentive to find breaches and enforce the payment of penalties because they will keep the cash.

Still fancy trying this way of getting rent in advance payments from tenants?

I don’t.

https://www.gov.uk/government/publications/asking-for-rent-in-advance-guidance-for-local-authorities/asking-for-rent-in-advance-guidance-for-local-authorities

Michael

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Shelter blames rising rents and housing benefit freeze for driving homelessness

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Shelter blames rising rents and housing benefit freeze for driving homelessness

Shelter claims “unaffordable private rents and the freeze on housing benefit” are pushing more people into temporary accommodation.

According to the housing charity, 382,618 people are now homeless, including 350,480 people homeless in temporary accommodation, the highest since records began.

The news comes as the government have pledged to prevent homelessness by the end of this Parliament through its new homelessness strategy.

Newham is the local authority with the highest rate of homelessness in the country

The housing charity claims one in every 153 people in England are now experiencing homelessness, with households spending an average of nearly three years in temporary accommodation.

In the North West, the number of people recorded as homeless has grown by 15% in the last year, and in Yorkshire and the Humber and the West Midlands it has risen by 11%.

Newham is the local authority with the highest rate of homelessness in the country, with 1 in 18 people homeless.

Outside of London, Slough is the worst-affected local authority, with 1 in 43 people homeless, followed by Hastings with 1 in 60 homeless and Manchester and Birmingham, where 1 in every 61 people are homeless.

Unaffordable private rents are pushing more people into homelessness

In a press release, Shelter blames rising rents and the freeze on local housing allowance (LHA) as trapping people in temporary accommodation.

The press release says: “The dire shortage of social homes, unaffordable private rents and the freeze on housing benefit are pushing more people into homelessness and trapping them there.”

Sarah Elliott, chief executive officer at Shelter, is urging the government to unfreeze LHA rates

She said: “It’s unthinkable that as winter sets in, more than 382,000 people are without a safe place to call home. Thousands of people are bracing themselves for their next freezing night on the street, while over 84,000 families are facing up to the grim reality of spending Christmas in damaging temporary accommodation.

“Every day at Shelter, we hear from parents who are terrified of waiting out another winter in appalling temporary accommodation. Cut off from family and friends in a bleak emergency B&B that’s miles away, they watch as their children’s breath hangs in the air and mould climbs the walls.

“We urge the government to help the families who are homeless right now by ending the freeze on housing benefit. This would immediately lift thousands of children out of temporary accommodation and into a home. While we campaign for change, our frontline services will continue providing direct support to those facing homelessness this winter and beyond.”

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Buy-To-Let Mortgages and Personal Guarantees – What You Need to Know

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Buy-To-Let Mortgages and Personal Guarantees – What You Need to Know

Most landlords using limited companies to borrow in 2025 will encounter the requirement to sign a personal guarantee (PG). Even though the borrowing is through a Special Purpose Vehicle (SPV), lenders want additional security that ties directors and shareholders personally to the loan. For landlords, understanding how PGs work – and the risks involved – is vital before signing on the dotted line.

What Is a Personal Guarantee?

A personal guarantee is a legal commitment by an individual to repay a loan if the borrowing company defaults. In practice, this means that even if the property company is the borrower, the lender can pursue the directors or guarantors personally if the company fails to meet obligations.

Personal guarantees usually cover the full amount of the borrowing plus interest and costs. They are a standard feature of almost all limited company buy-to-let mortgages.

Why Do Lenders Require Personal Guarantees?

• Risk mitigation – PGs give lenders an extra safety net beyond the property itself.
• Alignment of interests – lenders want to ensure directors remain personally invested in the success of the venture.
• Regulatory caution – lenders are expected to apply rigorous underwriting to buy-to-let, especially after the PRA rules of 2017.

Without PGs, many lenders would simply refuse to lend to SPVs, which would dramatically reduce financing options for landlords.

Risks for Landlords

By signing a PG, you extend your liability beyond the company structure. Risks include:

• Personal assets at risk – lenders can pursue guarantors’ personal wealth if the company defaults.
• Joint guarantees – where multiple directors sign, liability is often “joint and several”, meaning the lender can pursue one guarantor for the full amount.
• Inheritance implications – PG obligations can pass to estates, complicating succession planning.
• Difficulty exiting – once signed, PGs remain in force until the loan is repaid or refinanced.

Case Study: PG Liability in Practice

Scenario: Two directors borrowed £1m through an SPV. Both signed PGs. When the company defaulted, the lender pursued Director A for the full amount, even though Director B had greater personal wealth.

Outcome: Director A was forced to sell personal assets before later recovering contributions from Director B through legal action. This highlighted the risk of joint and several liability.

Can You Limit PG Exposure?

While most buy-to-let lenders require full PGs, some limited mitigations are possible:

• PG caps – a small number of lenders allow capped guarantees, usually in commercial rather than buy-to-let finance.
• Insurance – specialist PG insurance exists, though premiums can be high and cover is not always comprehensive.
• Negotiation – in rare cases, strong borrowers may negotiate partial PGs, but this is unusual in 2025.

In practice, landlords should assume PGs are unavoidable for SPV borrowing and plan accordingly.

Practical Tips for Landlords

• Always read the PG document carefully and take legal advice before signing.
• Ensure all directors and shareholders understand their obligations under joint and several liability.
• Maintain liquidity buffers to reduce the risk of default.
• Consider life cover written into trust to mitigate the risk of PG liability passing to heirs.
• Factor PG obligations into your wider succession and estate planning.

Final Thoughts

Personal guarantees are a fact of life for most landlords borrowing through limited companies in 2025. They give lenders confidence but increase landlord risk. The best approach is to understand the obligations fully, structure borrowing sensibly, and plan personal finances to manage potential exposure.

Speak to Our Sponsor

Our sponsor helps landlords understand PG obligations, explore insurance options where available, and structure portfolios to minimise personal risk while maintaining borrowing power.

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Publication date: Monday, 29 December 2025

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Why rushed leasehold reform could destabilise the housing market

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Why rushed leasehold reform could destabilise the housing market

Reform of the leasehold system is long overdue. It’s broadly agreed that the current model, with its layers of complexity and its potential for abuse, has required reform for some time. The Leasehold and Freehold Reform Act (LAFRA), which was enacted in a rush under the last government, represents a major step towards fairer ownership structures.

It includes provisions to reduce lease extension and freehold purchase premiums for leaseholders, greater transparency on service charges and accounts as well as enabling more buildings to qualify for the Right to Manage (RTM).

However, save for the RTM changes, many provisions are yet to come into force and may indeed change as we await further legislation. This includes the Leasehold and Commonhold Reform Bill which is expected imminently. We certainly do not want this to be rushed as was the case with LAFRA, which created much uncertainty in the market particularly amongst leaseholders (ironically the very group it seeks to assist).

Politicians’ promises (many of which have been diluted), unimplemented legislation and awaited further legislation has caused ructions throughout the sector that currently underpins over 5 million homes, not only affecting leaseholders and freeholders but also developers, lenders and managing agents.

The value of stability

Leasehold ownership accounts for around 20% of England’s housing stock and in London that figure rises to more than 50%. It encompasses not just privately owned flats but shared ownership homes, retirement developments and mixed-use schemes where complex management structures are essential. This is not a niche tenure but a mainstream form of home ownership which has been embedded in our legal and financial systems for centuries.

For all its faults, the current leasehold system allows leaseholders, subject to qualification, to acquire the freehold of their buildings collectively and take over the management through a no-fault process: something commonhold has yet to achieve at scale. That framework gives lenders confidence, sets out responsibilities for maintenance and provides the mechanism through which large multi-occupancy buildings can function safely. Reforming it requires consideration and continued consultation.

Moreover, it is absolutely agreed that the current regime is riddled with ambiguity and legal jargon, meaning that proper guidance and legal advice is often needed. However, provided leaseholders are fully informed and supported many buildings run well and leaseholders are happy. We must move away from rushed legislation.

Lessons from the LAFRA

The LAFRA itself demonstrates the tension between good intentions and practical reality. The legislation has been appreciated in principle, but many of its provisions remain unimplemented or require secondary legislation to become effective. This has created challenges in the sector for professionals when advising clients. The picture is still blurry.

The Act’s complexity means that conveyancers, valuers and managing agents are already having to navigate a transitional landscape. The risk is that before this new framework has bedded in, further reform could layer uncertainty on top of uncertainty. The next phase must therefore be about consolidation and consultation, not just another wave of change.

Commonhold’s promise and practicalities

The government’s renewed enthusiasm for commonhold is understandable. It promises a simpler, fairer system of ownership in which flat owners control their building collectively rather than holding time-limited leases from an external freeholder. Many practitioners, including members of ALEP, welcome this in principle. Indeed, it is a structure which has worked in many other countries for many years.

However, as ALEP and others have consistently emphasised, commonhold is not yet ready to replace leasehold wholesale. The model requires extensive legal, financial and cultural adaptation. Mortgage lenders remain cautious, developers have little incentive to adopt it, and most managing agents are more familiar with leasehold processes. Without addressing these structural issues, a rapid shift towards commonhold could stall housing delivery and undermine confidence across the market.

Therefore, reform should be evolutionary, not revolutionary. The government must test commonhold in new developments, provide robust guidance for lenders and set realistic timescales for transition. Only through incremental progress can confidence grow organically rather than by imposition.

Reform through collaboration

The solution lies not in halting reform but in managing it responsibly. Government, legal professionals, surveyors, lenders and leaseholders must work together to ensure that the next phase is both fair and functional.

Organisations such as ALEP are well placed to contribute, bringing together practitioners who work within the leasehold system at every stage including valuation, litigation and conveyancing.

A genuinely collaborative process could also help soften the process. Otherwise, leasehold reform risks becoming a ‘them and us’ landscape which is not necessarily healthy or helpful. Leasehold reform has too often been reduced to headlines about exploitation or profiteering, obscuring the reality that most ownership structures function effectively.

By focusing on evidence rather than ideology, policymakers can target the specific problems that remain, such as excessive service charges, opaque management, exploitative leases, without undermining the many developments where leasehold works well.

Avoiding unintended consequences

From a property investment point of view, the financial implications of poorly managed reform, the media frenzy and unnecessary scaremongering in some cases are significant. Uncertainty around valuation, proposed capping of ground rents for valuation purposes, and commonhold are impacting the market. We are yet to see a huge take up from developers to consider commonhold until the landscape is much clearer.

Getting reform right

Leasehold reform is absolutely necessary and welcome. The challenge is to balance ambition with realism. A modern, fair and transparent system is achievable, but only if changes are supported by consultation, education and clear regulation.

Professionals share the government’s desire to make home ownership simpler and fairer, but as was demonstrated at ALEP’s annual conference in October, we believe en masse that effective reform cannot be achieved through haste. The industry must be given the time and clarity to adapt, and leaseholders deserve a system that works in practice as well as in principle.

Reform done well can restore trust and strengthen the market and achieve the growth that the government aspires too. But done badly, reform could destabilise it for years.

Shabnam Ali-Khan is a Partner at Russell-Cooke and a member of ALEP (Association of Leasehold Enfranchisement Practitioners).

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