Landlords Holding Deposits
Holding deposits are something that both landlords and tenants have probably come across during their letting or renting careers. They can elucidate strong reactions depending on what side of the letting or renting fence you sit.
A holding deposit is taken by landlords or their letting agents to ensure that a tenant having indicated their intention to rent a property, don’t then change their mind and take alternative accommodation. Thereby leaving the landlord or letting agent without a tenant and with the added expense, in money and time of having to find a replacement tenant.
The holding deposit is clearly a useful tool in a landlords letting repertoire.
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However, landlords need to be careful that the holding deposit is not confused with a contribution toward the first months rent or any tenancy deposit. Both of these could indicate the creation of a tenancy, even where no tenancy agreement has been signed. This is because a tenancy can be created verbally.
Holding deposit should be repayable on demand.
The essential aspect for a landlord when taking a holding deposit is to make it clear that it is repayable on demand by the tenant. This is because if there are conditions attached to the repayment of the holding deposit then this could imply that the tenant has an option for a tenancy between the landlord and the tenant.
Holding deposits resented by tenants
Holding deposits are frequently resented by tenants particularly where they are enforced by letting agents. This is because many letting agents will withhold an administration charge if the tenancy does not proceed with the tenancy. This ‘charge’ is to cover them for the time and expense of dealing with the tenant. However, this may be unenforceable in law.
The Contract Regulation Unit of the Office of Fair Trading issued a statement which is fairly clear on this point:
“Where the tenancy does not go ahead because the landlord or agent decides not to proceed, whether this is on the basis of a failed reference check or not, then we take the view that they are not entitled to charge the tenant for the costs they have incurred because it is the landlord/agent who has breached the agreement, not the tenant. If a tenant puts down a holding deposit, provides accurate information about themselves and does not withdraw from the agreement, we see no justification for the landlord/agent seeking to keep any of the tenant’s monies on the basis that the landlord/agent decides not to proceed with the tenancy.”
Many tenants resent the fact that some letting agents appear to act with impunity when it comes to the amount that is charged by them and the circumstances when a charge is made.
Property Hawk has come across at least one campaign where student tenants have started a campaign against letting agents taking holding deposits.
They have identified 5 grounds against the use of holding deposits relating to their unfairness.
The legal reasoning on tenancy holding deposits.
The rights of a letting agent and the tenant when taking a holding deposit is a grey one. Legally the argument on the holding deposit would follow that:
The holding deposit is paid to cover the agent’s expenses and compensation for his time and trouble if the tenant does not proceed with the tenancy.
This may be either because the tenant decides not to proceed or they fail the credit referencing and checks implemented by the letting agent.
The problem is that the arrangement is between the tenant and letting agent and the landlord does not come into it.
The argument follows that if the arrangement is with the agent then there is a question about whether there is a contract between prospective tenant and agent at all. This is because everything the agent does is for the benefit of the landlord. No service is supplied to the tenant. There is no exchange of promises between the agent and the tenant. It can be argued that there is no contract and therefore the holding deposit money is repayable on demand just as it should be when the landlord holds the funds.
Property Hawk verdict
The law over holding deposits remains a grey area and therefore landlords need to tread carefully before proceeding. It also highlights the fact that landlords who take the care of their tenants seriously therefore need to understand the practices of their letting agent if they are not to risk alienating their tenant well before a tenant has even began their tenancy.
Have you experience or a view on holding deposits?