Can a theoretical deposit be relabelled rent?

by Readers Question

14:22 PM, 4th October 2016
About 4 years ago

Can a theoretical deposit be relabelled rent?

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Can a theoretical deposit be relabelled rent?

A fellow landlord found themselves in the unenviable position of landing a tenant whose history was hidden but rapidly caught up with them after only 6 weeks in the property.jif

The paperwork was fine and the prospective tenant had a backstory worthy of Harry Pearce himself. Now, with 8 weeks hindsight the clues are there; I doubt a bank would have spotted them.

The tenant moved in without funds for rent and deposit being cleared. After a short delay and many attempts (apparently it’s the banks fault), the tenant’s father managed to make a payment to the landlord and the tenant called it ‘the deposit’.

No rent though. Apparently the tenant has as many difficulties with incompetent banks as the father.

The landlord hung on to the deposit outside the deposit scheme they usually use whilst the tenant made and broke many promises to pay rent. The landlord has their own cash flow to mind and was forced (by the need for their own survival) to pay their mortgage with some of the deposit.

But on day 31 of ‘the deposit’ being handed over the landlord was (and this is rather a strong word, I can think of no other) blackmailed regarding penalties as it wasn’t deposited within 31 days.

Still no rent.

So, my question is simple and in two parts…

The tenant has failed to pay any rent and the tenant’s bank continues to be incompetent (Apparently). Rent, by agreement should have been monthly in advance. Can a landlord re-label the money previously handed over as ‘the deposit’ to cover unpaid rent?

The landlord (is not me by the way) is seeking an eviction Section 8 – non-payment of rent, fraudulent references and two other unpleasant clauses. It is clear to me that this will go to the bailiff stage. The landlord will refuse to release the deposit, but they are desperately worried that the Deposit Scheme rules will find against them. Does anyone know what their view might be?

Thanks

Hamish


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Comments

Damon Haughey

11:09 AM, 5th October 2016
About 4 years ago

we can give you the details,the hearing was in Chichester,maybe better to send a PM i can give you the details The one big difference it seems is our tenant only claimed it as a deposit months later as at the time i put the rent up slightly and did not take deposits.

Gary Nock

11:31 AM, 5th October 2016
About 4 years ago

Hamish it looks like these tenants knew exactly what they were doing. If its a deposit and subsequently protected as such it's a deposit. No way round it. Romain is right. And I know it's easy in hindsight but tenants should not get keys until and unless they have passed a comprehensive reference by a reputable referencing company which includes bank, employment, and previous landlords. And they pay the first months rent and deposit up front. If they are benefits tenants then get a guarantor and do the same checks. Then get rent insurance guarantee for about £150 a year. If no guarantor - no property. And all this is done before they move in.With the rental shortage you will find a tenant who will satisfy the criteria. In 14 years of being a landlord across 10 properties and about 50 tenancies I have had two go wrong. And that was with letting agencies in my early days before I let my own and had my own agency. I don't compromise on processes just because the landlord wants a tenant in quick. In the long run it will bite you on the backside.

Ian Narbeth

11:36 AM, 5th October 2016
About 4 years ago

It is easy to say it with hindsight but the landlord should have protected the deposit in a scheme within 30 days. In this case an insurance scheme would be simplest (but the landlord would have to pay the premium). He could then have taken it almost immediately and notified the tenant. Now he faces a possible penalty of 3 times the deposit and not being able to evict the tenant until the "deposit" is repaid.

There is a glimmer of an argument that what the tenant calls it is not decisive. We have tenants who label EVERY rent payment made through online banking "Deposit" but that is only because they repeat the description that their bank auto completes for them from the first time they made a payment to us. Clearly the money is rent not deposit. We have written to the tenants asking them to correct it but they can't be bothered. However, in this case the landlord should have written to the tenant immediately he received the money saying that he would only accept it as rent.

A further problem is that the Prescribed Information form ought to have been served on the tenant's father as well as on the tenant because the father provided the deposit.

As Romain says it was not wise to let the man in without rent in advance plus deposit.

The deposit protection rules are Draconian. If landlords don't understand them they need to get educated quickly.

Ian Narbeth

11:47 AM, 5th October 2016
About 4 years ago

Reply to the comment left by "Hamish McBloggs" at "04/10/2016 - 18:47":

Hamish, you say: "They paid the money into the protection scheme after the 30 day limit. "
If that is so then any argument now that it was NOT a deposit is doomed and the landlord is facing a minimum 1x penalty. The tenant's conduct, failure to pay rent etc is, I am afraid to say, irrelevant.

Kate Mellor

12:13 PM, 5th October 2016
About 4 years ago

Reply to the comment left by "Hamish McBloggs" at "05/10/2016 - 09:12":

I would have (with hindsight perhaps) notified the tenant that the money received was their first months rent as they had commenced occupation of the property and the first months rent was due and payable. They therefore had not yet paid me a deposit which was still owed as per their AST agreement.

I would have probably done this immediately that I received the money with their description of it as the deposit, but I certainly would have done so when they started threatening me with punitive action. I think I would have smelled a rat there.

I would say though, that from my observation DPS does not state the date the deposit was protected on their certificates. Just the start date of the tenancy. If the landlord hasn't notified the tenant that the deposit was protected one day late how would they know?

Romain Garcin

12:23 PM, 5th October 2016
About 4 years ago

Reply to the comment left by "Ian Narbeth" at "05/10/2016 - 11:36":

There is a glimmer of an argument that what the tenant calls it is not decisive."

Ian, this argument works when there is no deposit due. In that case obviously the label is incorrect.

But if the deposit is due and the tenant sends a payment with the mention that it is for the deposit then the landlord's hands are tied.
He cannot decide to re-assign the money to another debt, especially considering the implications of deposit protection regulations.

Ian Narbeth

12:33 PM, 5th October 2016
About 4 years ago

You may be right Romain. You are probably aware of cases where a debtor pays a sum and it is open to the creditor to allocate it to a particular debt or debts unless the debtor says that it is to be applied to a particular account. That is not quite on all fours with this case and I am not aware of a legal case that has decided the point.

That said, I am not confident of the landlord's case here and think he is on a hiding to nothing. However, if he had immediately written back and said "I am only prepared to treat this as rent" he might, just might, have found a sympathetic judge.

Dylan Morris

12:52 PM, 5th October 2016
About 4 years ago

I know hindsight is a wonderful thing but the best approach is simply to avoid these sort of problems in the first place.

Ensure all rent and deposit payments are cleared and you pay the deposit into an appropriate scheme within 30 days. Reference your tenants properly before giving them a tenancy. I would not obtain a current landlord's reference it's worthless, for obvious reasons. I always insist on seeing the last 12 months bank statements showing rental payments going out, then you know the tenant has paid the last year's rent and on time. If they cannot show this and insist they pay their landlord in "cash" then if the statements show a salary credit and everything else going out, such as utility bills, insurance payments, etc by direct debit then you have to question why on earth the rent would be a "cash" payment. If this is the case I look for another tenant, better to be safe than caught out.

Mandy Thomson

15:57 PM, 5th October 2016
About 4 years ago

When the tenant failed to pay rent, was the his explanation at any point, "It's already been paid" (with reference to the "deposit")? However, as Ian Narbeth has stated, the landlord may have shot himself in the foot by protecting this money in a scheme, thus acknowledging it as a deposit, instead of insisting that it was to be used as rent paid upfront.

See the RLA's page on Johnson v Old http://www.rla.org.uk/landlord/guides/do-you-need-to-protect-advance-payments-of-rent-as-tenancy-deposits.shtml In Johnson v Old, two payments were taken; a payment for the deposit, and another which was an advance of rent, which helped the landlord's case. However, the case went as far as it did because the AST was unclear about rent payment frequency.

The devil is in the detail; just because the tenant called the payment a deposit, it need only be treated as such if both parties agree that this is what it is. In the OP's case, the landlord might have had an argument that the payment was an advance of rent, as no other advance rent payment was made before the tenant moved in. At the end of the day, the rent is more important than the deposit, so in a situation where only one payment is to be made, for most landlords rent will take priority.

Again, every recorded communication between the landlord, tenant and tenant's father needs to be gone over thoroughly, as well as the AST itself. It might be worth getting a legal opinion if there is any chance the landlord placed the money in the deposit scheme under duress.

Romain Garcin

16:16 PM, 5th October 2016
About 4 years ago

Reply to the comment left by "Mandy Thomson" at "05/10/2016 - 15:57":

"instead of insisting that it was to be used as rent paid upfront."

"The devil is in the detail; just because the tenant called the payment a deposit, it need only be treated as such if both parties agree that this is what it is"

The landlord cannot insist on this if the tenant states it is a payment for the deposit because, as mentioned, the creditor is free to allocate the payment only if the debtor did not.

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