Don’t Panic ARLAMake Text Bigger
The Tenant Fees Act 2019, which came into force on June 1st, is causing concern amongst landlords and agents. ARLA Propertymark, which represents residential letting agents and has over 9,000 members, appears to be panicking and giving out wrong advice. ARLA has advised its members that they may be in breach of the Act if they take any payment other than the holding deposit before the grant of a tenancy. This would include the first payment of rent and the tenancy deposit (now limited to five weeks’ rent or six weeks’ rent for annual rents exceeding £50,000).
The Act is not well drafted, but ARLA are misinterpreting paragraph 3(2) of Schedule 1 which defines a holding deposit as money “paid by or on behalf of a tenant to a landlord or letting agent before the grant of a tenancy with the intention that it should be dealt with by the landlord or letting agent in accordance with Schedule 2” (treatment of holding deposit).
Admittedly, that wording is imprecise because the person paying the holding deposit may not have any intention that it should be dealt with in accordance with Schedule 2. However, it can readily be inferred that the payer intended the money be dealt with as a holding deposit. That being the case, the initial payment (now limited to one week’s rent) will be the “holding deposit” for the purposes of the Tenant Fees Act. The payment of rent and of the tenancy deposit will not be intended to be or be a holding deposit. It is inconceivable that a court would hold that money described as a tenancy deposit or as rent would be construed, for the purposes of the Act, as being a holding deposit, thereby breaching the one week limit.
Unfortunately ARLA have now opened a can of worms. If agents follow their advice and only take rent and the balance of the tenancy deposit after the tenancy agreement has been signed, what happens if a tenant signs the tenancy, takes the keys and then fails to pay anything?
Landlords will rightly be upset that the agent has severely prejudiced them by letting the tenant into occupation without receiving the rent and the tenancy deposit. The agent is likely to be sued.
ARLA’s advice has been picked up by other landlord websites. Landlord Law Services say “the safest course of action is to follow the ARLA advice and take no payments other than the holding deposit.” The Negotiator repeats ARLA’s advice.
In my opinion, ARLA are completely wrong and should withdraw their misguided advice.
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