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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