Beware of what constitutes a deposit – Is there a definition?

by Readers Question

10:48 AM, 25th November 2014
About 4 years ago

Beware of what constitutes a deposit – Is there a definition?

Make Text Bigger
Beware of what constitutes a deposit – Is there a definition?

My tenant could not afford a months rent and deposit in advance to secure my property. She really wanted the property and offered to pay four weeks rental in advance.

She was honest enough to say that she would not be able to pay future rent in four weekly payments so offered to pay one week at a time from day one of her contract. Ie she would always be four weeks in advance as long as she paid her weekly rent.

Due to her losing her job, rent arrears accrued and I had no alternative than to issue a Section 21 Notice via the local County Court.

The judge yesterday threw out of court my re possession order request stating that I had tried to manipulate the Tenancy Deposit Scheme and ruled that the four weeks rent was indeed a deposit.

I argued that had the tenant saved each weeks rent and had paid me four weekly as per the contract there would have been no difference. The judge was adamant that the four weeks rent was indeed a deposit and after this ruling I am awaiting a solicitors letter demanding the penalty of three times the so called deposit figure for failing to deposit in a Deposit Scheme.

Is there any clear definition as to what constitutes a deposit.

Many thanks

Garrydeposit



Comments

Neil Patterson

10:55 AM, 25th November 2014
About 4 years ago

Hi Garry, I got this from the RLA site:

Common situations which might be affected

Taking a holding deposit so that residential accommodation is taken off the market but no contractual commitment is entered into at that stage relating to the tenancy.

An initial deposit taken at the time the tenancy agreement is entered into which is intended to be in part payment of the rent. For example a flat is let for £500 and the landlord takes £250 off the tenant initially before the tenant moves in to go towards the first month’s rent with the balance of the first month’s rent is being paid when the tenant actually moves in.

Advance payment of rent e.g. a landlord takes one months rent and the next month’s rent as well and the tenancy is initially entered into so that the landlord always has one month’s rent in hand.

Taking payments for rent by a series of post dated cheques.

Taking a guarantee.

Collecting an administration fee.

Agreement to refund rent if the tenant complies with the tenancy.

The definition of Tenancy Deposit

For the purposes of the Housing Act 2004 Tenancy Deposit is defined. It means “any money intended to be held by the Landlord or otherwise as security for the performance of any obligations of the Tenant or the discharge of any liability of his arising under or in connection with the Tenancy”.

Money is defined as being in the form of cash or otherwise.

Romain Garcin

14:06 PM, 25th November 2014
About 4 years ago

Hi Garry,

Neil has essentially given you the definition as written in the statutes.

In your situation the key is that you are always holding 4-week worth of rent although that money is not in fact rent since it is not assigned to any rental period and your tenant continues to pay weekly: You are holding it as security.

Gary Nock

15:11 PM, 25th November 2014
About 4 years ago

Garry,

Romain is right I am afraid and so is the judge. If it looks like a deposit, walks like a deposit - it is a deposit. Slightly different to when a "holding fee" is taken to take a property off the market until the tenancy actually comes into being. Do not call it a deposit, and make clear on any receipt that it is refundable against the first months rent, and is thus allocated to the first rental period.

I know of several landlords who take two months rent up front and allocate it to the first two rental periods on the tenants rental statement. Then every subsequent months rent is allocated against a rental period two months in the future. Again I think this is manipulation of the Deposit Protection Rules. Industry Observer will be going apoplectic I would think. But you have done the wrong thing for the right reasons and may be able to avoid the penalty. You would have been better just treating the first months rent as just that. And I think I am right in saying that with weekly payments you may need a rent book if weekly payment is stipulated in the tenancy agreement.

Paula Bourne

15:32 PM, 25th November 2014
About 4 years ago

The cynic in me guesses the judge's ruling was to stave off (if only for 4 weeks) the inevitability of another name on the housing list

Mick Roberts

15:45 PM, 25th November 2014
About 4 years ago

I’ve had one of these & it’s not nice. Took gal to court on Sec 21 notice.

Framework, the Homeless Charity represented the gal & wanted to argue the deposit rule.

But because I’d put 8 weeks rent payable in advance on tenancy & £0 in the deposit box, judge said that’s 8 weeks rent in advance & no deposit rules didn’t come into it.

I’m not gonna’ say it can go that way every time, but the wording on tenancy worked for me. Maybe different judge might have seen it different.

Not a nice situation to be in.

Gary Nock

16:51 PM, 25th November 2014
About 4 years ago

Reply to the comment left by "Paula Bourne" at "25/11/2014 - 15:32":

About right Paula. Most Judges in the County Court dealing with Housing seem to be bleeding heart left wing liberals these days who think landlords have a responsibility to let tenants live in their properties rent free.

Paula Bourne

17:22 PM, 25th November 2014
About 4 years ago

Reply to the comment left by "Gary Nock" at "25/11/2014 - 16:51":

The impression seems to prevail that all landlords are making a fortune (which I most definitely am not) off the backs of the unfortunates....
Why isn't it seen as a service; a provision of housing which would otherwise not exist? It can be hard work, worrying and stressful - and that's on a good day!

Gary Nock

17:42 PM, 25th November 2014
About 4 years ago

Reply to the comment left by "Paula Bourne" at "25/11/2014 - 17:22":

You think its bad now Paula with a Con-Lib coalition..wait until Ed Miliband gets in...all landlords will be declared as "social terrorists" and be interned and have their properties confiscated. A frightening prospect. Rent controls linked to average earnings, rent increases limited to CPI, power to evict removed.

AA Properties Wales

18:26 PM, 25th November 2014
About 4 years ago

Scary stuff indeed! If I have a new tenant (normally referred to me by the council) and they really can't afford months rent and deposit, then I ask for last months rent. This means I am not protected by any damage etc.
Should Garry issue a section 21 now?
Talking about eviction, can you evict someone if they are staying at a property with the tenant?

Garry Scothorn

18:32 PM, 25th November 2014
About 4 years ago

Hi all
Many thanks for your comments regarding what constitutes a deposit.
My contract was four weeks rent in advance.
My tenant had a receipt from me for four weeks advance rent.
The contract showed zero deposit/bond
I explained to the judge that it was the tenants request to pay rent weekly not mine.
The so called "Judge" gave me literally three minutes to explain my situation and immediately made her decision that I had manipulated the deposit scheme.
She was totally anti landlord and in my opinion she should not be judging people with her bad attitude.
What chance do we have as landlords when a so called judge shows no reasoning.
Regards Garry

1 2

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

And the landlord vote goes to - ?

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More