Too much, too soon: advance rent in private residential tenancies
2021-11-17

Introduction

There is something of the ‘gift that goes on giving’ in respect of the Private Housing (Tenancies) (Scotland) Act 2016. The more one looks into that statute, which constituted a massive paradigm shift in the way Scottish private rented tenancies operate presumably intended to stand for years if not decades, the more perplexing the questions that emerge out of it.  Regular readers of this blog may remember that we have discussed issues arising out of the Act in previous blog articles, and here we once more return to it.

Our attention was recently drawn to a news article in the BBC Scotland news website pages titled ‘Scotland’s students fact accommodation ‘nightmare’.  The article states that ‘anecdotal evidence … suggests some students are being expected to pay six months of rent upfront.’  This anecdotage chimes with comments which have reached our ears also.

In one of our previous blog articles we mooted the idea of the Private Residential Tenancy (PRT) under the 2016 Act as being an ‘ishless tack’.

The Rent Act and Assured tenancy regimes preserved a distinction between contractual and statutory tenancies (see Rent (Scotland) Act 1984 s.3 and Housing (Scotland) Act 1988 s.16), however, like the Scottish secure tenancy under the Housing (Scotland) Act 2001, the PRT is a statutory tenancy from day 1. Thus ( … ) tacit relocation, tacit relocation and even the concept of the ish (that is to say, a planned date of departure) are largely irrelevant considerations in relation to PRTs under the 2016 Act, which gives rise to what might be termed an ishless tack.

A PRT may get created today – the day you read this blog - and immediately or reasonably promptly lawfully terminated by the tenant by means of s.48 of the 2016 Act, subject only to the 28-day minimum notice period in the event of no alternative minimum notice period lawfully agreed in terms of s.49 of the Act.  But if six months' rent in advance has been paid at the outset, what is the status of the surplus retrospective overpayment quantum in that advance payment total?

Advance rent under the 2016 Act

It is necessary here to consider the statutory provisions governing rent in advance in the residential private rented sector in Scotland. Section 89 of the Rent (Scotland) Act 1984, which by the effect of Section 20 of the Private Housing (Tenancies) (Scotland) Act 2016 applies to private residential tenancies in the same way it does to regulated tenancies, prevents the advance payment of rent in two circumstances: 

  1. Where the rental period has not yet commenced; and 
  2. Where the demanded payment is more than six months in advance of the end of that period. 

Thus, on day one of a rental period, it becomes possible to take rent for up to six months later, but no more. The language of the Rent Act states that any such requirement - to pay in excess of six months or before the commencement of the rental period - shall be ‘void’ (assuming here the ordinary contractual meaning), with rent for any period to which a prohibited requirement relates being irrecoverable from the tenant. Where such an irrecoverable amount is paid to the landlord, the tenant is entitled to recover it. 

Under a PRT, if a landlord refuses to give such an amount back, the tenant’s judicial remedy is a Rule 111 application to the First-tier Tribunal (miscellaneous civil proceedings in relation to a PRT) for the return of the money, founded on sections 20(1) and 71(1) of the 2016 Act, provided that they do so within 2 years of making the payment (1984 Act s. 89(6)). However, where the tenant has requested that more than six months’ rent be paid in advance, it will be taken to neither be ‘imposed’ nor a ‘requirement’ of the tenancy and will thus be irrecoverable (see Malloch v Bernisdale Homes [2020] UT 6, where a tenant made such a request on the basis that he would not pass an ‘affordability test’ for the accommodation if he did not). 

Given that a PRT can be created with no defined end date and is terminable at the instance of the tenant at any time, a question arises of whether lawful advance rent that ends up being unused would be recoverable. Under the Housing (Scotland) Act 1988 regime, it was common for landlords to insist on rent for the remaining period unless they found a new tenant, but here there is possibly no true remaining period. It is of course possible to write into the tenancy agreement that such advance rent would be recoverable, but it is not a feature of the Scottish Government’s Model Private Residential Tenancy Agreement

Unjustified enrichment: a potential remedy?

A possible remedy for a tenant might lie in the sphere of unjustified enrichment, specifically either condictio causa data causa non secuta or condictio sine causa. The former condictio can be used where payment is made in contemplation of a future and contingent event which does not occur, such as a one-month period of residence in a rented property could be taken to be.

The latter condictio requires there to be no legal justification for the retention of the money. This perhaps could run into difficulty on the argument that the advance payment was taken legitimately in terms on the contract, standing the existence of the tenant’s break clause.

We also note that the Stair Memorial Encyclopaedia (Remedies (reissue), para 89, fn5) mentions another condictio in the civilian tradition which deals with cases where an existing finite cause ceases to exist. This condictio, the condictio ob causam finitam, has not (or not yet) been judicially recognised in Scots law, but operates in modern civilian legal systems such as Germany and Austria. This is perhaps a better fit for an advance rental period than the causa non secuta, the definition of ‘contingent’ implying that the future event could only be triggered in certain circumstances, so ‘doesn’t exist until it does’, while an open-ended tenancy is more a case of ‘existing until it doesn’t.’ 

We are, in considering this matter, proceeding on the assumption that the First-tier Tribunal would accept a Rule 111 action based on an equitable legal remedy which, per the argument that actions that would have been previously open to a sheriff should not have been removed in the transfer of competence, it ought to.

South of the border

Interestingly, English law has a specific mechanism for these kinds of circumstances in assured shorthold tenancies as of 2015 but only where the landlord instigates termination, whereby advance rent can be recovered to an extent determined by a formula based on the number of whole days of the rental period where the tenant was not in occupation (Housing Act 1988 s. 21C, inserted by the Deregulation Act 2015). Because the amount is calculated in respect of the end of the rental period paid for rather than the end of the tenancy, this solution is workable even in an open-ended tenancy.  The issue of the requirement of six months rent in advance is not exclusive to Scotland – see this article - notwithstanding that there is no PRT mode south of the border.

Conclusions

Ultimately, this speculative assessment is as far as we can go until the matter is considered by a Tribunal. But where does this leave the general principle of a six month limit in respect of pre-paid rent in a new regime in which a PRT may come into existence notwithstanding the lack of a stated period?

The PRT is divorced at the outset from the classic Scots common law conception of the lease as being a contract for the hire of land in which a term is an essential prerequisite. Even the specification of an indefinite term (e.g. the ish in Carruthers v Irvine [1717] Mor 15195 of ‘so long as the grass grows up and the water runs down’) at least goes further than a PRT is required to in that a token term is still provided. The provision in s.89 of the 1984 Act works if there is a lease of a year, or six months, but the 1984 Act required a (definite) ish, failing which, possession taken, a year might be implied (per Gray v University of Edinburgh 1962 SC 157).  The Rent (Scotland) Act 1984 (and its predecessors) and the Housing (Scotland) Act 1988 both accommodated the classic Scots law conception of the lease, such as might be known, recognised and discussed in such classic twentieth century texts as Rankine and Paton & Cameron. 

In passporting the provisions in s.89 of the 1984 Act into the 2016 Act, the Scottish Legislature perhaps assumed this would be equally true of its new statute.  But it isn’t.  And consider, a requirement of six months might well be a rolling requirement, i.e. on 1st January the rent falls due for the period 1st January – 30th June, and on 1st July, it then falls due for the period 1st July – 31st December.  Section 89 of the 1984 Act accommodates this.  But the 2016 Act minimum notice period is divorced from terms, ishes and tacit relocation, and as a PRT rolls on the more likely it becomes that a termination by the tenant will result in a prepaid sum by way of rent in advance in  respect of a period in which, the tenancy having been lawfully ended, there is no rental liability. 

The Scottish legislature could be said to have done better, when legislating for a new private residential tenancy mode, if they had departed from the 1984 Act s.89 formula on advance rent, and limited the lawful advance rent period to two months, in line with the cap imposed by s.90 on tenancy deposits. Of course, a key difference between advance rent and a deposit is that the latter is (or should be) protected by a scheme, while nothing limits what a landlord can do with monies received as advance rent. There is therefore not the same level of security possible when attempting to recover advance rent, and the onus is on the tenant to ask for it. Considering that the policy of the devolved Parliament in respect of the private rented sector has nearly always been to place new obligations on the landlord, there is a lacuna here that still allows for predatory practice by landlords, especially in a competitive rental sector.

Finally, and as advocate Adrian Stalker pointed out in 2015 SCOLAG 226-228, as initially conceived, the PRT would have had an initial period of six months, on the model of the Short Assured Tenancy under the Housing (Scotland) Act 1988.  At the very least, as initially conceived of, the PRT would have been more ish-centric. In the worst case scenario, its absence creates more problems than it solves.

Published by School of Law, University of Aberdeen

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