Bankrupt tenant allowed to keep deposit despite arrears?

by Readers Question

9:36 AM, 16th March 2017
About 2 years ago

Bankrupt tenant allowed to keep deposit despite arrears?

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Bankrupt tenant allowed to keep deposit despite arrears?

I have a tenant who (thankfully) vacated last weekend, owing two months unpaid rent , and left the flat in a terrible mess.

Three days later the whisky bottles and fag-ends have been cleared, and we are beginning to see carpet, and the inside of fridges and ovens.

Anyway, their deposit covered about six weeks of rent, so we are already out of pocket, before even starting to pay for the repairs and cleaning.

The agents initially reported that the tenant was going to sign over the deposit to us, so better than nothing, but now the tenant, having been declared bankrupt about a month ago, thinks he is entitled to keep his deposit, or use it to offset against other debts etc.

Can anyone clarify whether this is true.? If so it would seem to be yet another unbelievably unfair piece of legislation hammering landlords.

Many thanks

Ian



Comments

Neil Patterson

9:39 AM, 16th March 2017
About 2 years ago

Hi Ian,

An interesting technical point here. I am assuming you are going through the Deposit protections scheme's dispute procedure and we will see what they say.

However if the tenant is bankrupt he may have preferential creditors so would they rank before a landlord's deposit or is that considered a preferential creditor?

DALE ROBERTS

10:51 AM, 16th March 2017
About 2 years ago

Not paying the last month or so of rent is a common practice utilised by tenants to "recoup" their deposit. They are well aware that they have to be at least two months in arrears before any notice can be served on them. I actually took a tenant to court in this regard and was awarded costs that covered the deposit and the damages. I was then advised that it would be useless to enforce the order. The only consolation I have is that there is a judgement against the tenant which hopefully discourages other landlords from leasing to her. But court costs are punitive. The property industry in the UK is fraught with inadequate protection for the landlord. It is an industry that requires regulation to prevent these constant occurrences.
My best advice is to ensure you do not rely on any agent to only do your reference checks. Investigate the excellent references provided by Landlord Referencing. It is one of the few organisations in the UK who protect landlords. Property 118 is another.

MoodyMolls

11:01 AM, 16th March 2017
About 2 years ago

Yes I too find that they withhold the last months rent, interestingly I discussed this with a letting agent and they said they had never experienced it.

Stephen Smith

11:08 AM, 16th March 2017
About 2 years ago

Hi,

As Dale suggests, the way forward is comprehensive referencing. However, tenants, on being turned down, start to get "creative", living with friends, only one person on the tenancy when it is obvious a couple are the tenants. This done to avoid the tenants debts following him around.

On the matter of the bankruptcy, you will be a creditor along with all the others, get in line!!

If he has been made bankrupt the debt will be substantial, in excess of 5k, more than likely the tenant has gone to one of the debt consolidation companies where a third party puts money in and everybody gets 30p in the pound. It is called an IVA.

You should have been informed as a creditor.

I assume the Deposit Protection Service or similar are involved?

Kind Regards,

Stephen

Ian Narbeth

11:14 AM, 16th March 2017
About 2 years ago

You raise an interesting point of law. However, the key thing is to get the money. You need to move fast.

You do not mention who holds the deposit. If it is the DPS you should immediately put in a claim for all of it to be paid to you. You will need to make a statutory declaration as to the claim for unpaid rent. See https://www.depositprotection.com/help/browse/custodial/agent-landlord/single-claim-process

Unless the tenant or his trustee in bankruptcy respond you should receive the money and it will then probably be more trouble than it is worth for the trustee to come after you. If he tenant has no assets the trustee will not want to risk his own money pursuing legal claims.

Romain Garcin

11:16 AM, 16th March 2017
About 2 years ago

You should assert if your tenant has indeed been made bankrupt, on what date, and possibly what is included.

My understanding is that any new debts after bankruptcy will stand so that may mean at least one month rent, damage and cleaning cost in any case.

Depending on when the tenancy ended with respect to the rent due date they may be liable for a full extra month rent, which may come in handy.

I have no experience in this area, but it seems to me that a tenancy deposit is not any asset but money ring-fenced as security so I would hope that it is off-limit for other creditors.

I wouldn't trust the deposit scheme to know its way through this and would rather seek expert advice of my own first, if possible.

DALE ROBERTS

13:13 PM, 16th March 2017
About 2 years ago

Reply to the comment left by "KATHY MILLER" at "16/03/2017 - 11:01":

I'm not surprised they make that mendacious claim.
I have generally found that the credit checks done by agencies are desultory. They have no interest in protecting you as the landlord. Their main objective is a commission. And that commission is paid upfront. If the tenant defaults, absconds, proves to be liar, trashes your property etc it is the landlord who shoulders the costs.
PLEASE upload tenant history on Landlord Referencing. It appears to be the only avenue open to landlords to investigate tenants who are well versed in exploiting the current system by false claims of not having rented before.

Ian Simpson

12:22 PM, 18th March 2017
About 2 years ago

Reply to the comment left by "Ian Narbeth" at "16/03/2017 - 11:14":

Yes, the agents have actioned this already anyway, but as you say there is a waiting period of fourteen days. It would be interesting if there are any legal eagles on here who can clarify one way or the other, whether funds held in deposit relating to an AST can only be used to offset costs related to that AST, or whether they are, despite being ESCROW funds, freely available to the tenant anyway to use against other creditors....

Hopefully somebody in the know will come back on this ...

Many thanks

Ian Narbeth

10:25 AM, 20th March 2017
About 2 years ago

Reply to the comment left by "Ian Simpson" at "18/03/2017 - 12:22":

Hi Ian
The answer to your question is not straightforward. The law relating to insolvency never is. I cannot find any clear answer to your question. The answer ought to be that the money is ring-fenced but I cannot find any authority on the point. A straw poll of colleagues did not help. I suspect because the sums of money involved are comparatively small, cases never get to the High Court so there are no legal precedents.

That said, however, the funds are not "freely available to the tenant". The tenant will not be able to get the money in priority to you. If he has a trustee in bankruptcy the DPS may get a claim from the trustee. However, from your perspective I recommend you act as if the money is secured for your benefit until the DPS tell you otherwise. There is nothing you can now do to alter the legal position.

DALE ROBERTS

11:25 AM, 20th March 2017
About 2 years ago

As landlords we need to find bona fide organisations that allow us to upload the tenant history for reference to other landlords. I've just uploaded the present tenant to the Landlord Referencing site. She has trashed my very upmarket property and, she bypassed all the cursory credit checks undertaken by my managing agent ie lived with her mother so no landlord reference, she would be the only tenant and, she provided a guarantor. I subsequently discovered she was previously renting from a landlord in the same development, has a husband and sister staying with her including a 4 year old son, (in breach of the lease) and the guarantor appears to be fictitious. Had the previous landlord made other landlords aware of her tenant history via Landlord Referencing - I would not have accepted her.
Let's protect each other. Tenants, like my present nightmare, should never be allowed to take advantage of uninformed landlords again.

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