Don’t Panic ARLA

by Ian Narbeth

16:16 PM, 26th June 2019
About 2 years ago

Don’t Panic ARLA

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Don’t Panic ARLA

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.

Comments

reader

12:15 PM, 1st July 2019
About 2 years ago

What different or additional things would be required to create an option? Surely an option with a post two year lease equates to withdrawing the property and may be giving exclusive rights to purchase subject to conditions.

Ian Narbeth

12:19 PM, 1st July 2019
About 2 years ago

Reply to the comment left by at 01/07/2019 - 12:15
What are you talking about? I am talking about tenants signing ASTs, not someone getting "exclusive rights to purchase subject to conditions".

Kate Mellor

12:42 PM, 1st July 2019
About 2 years ago

Reply to the comment left by Ian Narbeth at 01/07/2019 - 10:31
I think the point made by ARLA was that in cases where a tenancy WAS signed a tenant could thwart any attempt to evict them using s21, by claiming that you had breached holding deposit legislation, by taking rent & deposit in advance of signing the tenancy. That is what I’m trying to avoid.

As I stated, I’ve never taken a holding deposit yet & luckily never had the tenant pull out, so the only reason I take the rent & deposit in “advance “ is to ensure cleared funds prior to committing myself to the tenancy. That may be the day before signing. I’m not asking for it on application. If I was, then yes, that may look very like a holding deposit. If the tenant or indeed I were to decide not to enter into the tenancy after funds had been received, then it would not be legal for me to keep any part of the rent & deposit money because that was not it’s purpose as defined in my AST document.

As I said in my earlier comment, the law stipulates that it’s about what the tenant believed they were paying for and not what the landlord intended to do with the money, so I’m merely spelling out the fact that it isn’t a holding deposit, it’s for rent & deposit only (as defined in the AST) & will not be retained if the tenancy fails to commence. A holding deposit is designed to ensure the landlord HOLDS the property for the agreed applicant. If I haven’t agreed to do that, then WHY would a tenant in their right mind PAY a deposit for me to NOT do that?? It’s illogical, that’s why I believe that in spelling this out IN WRITING there can be no claim that they THOUGHT they were paying me to hold the property for them.

As I mentioned, I may very well decide going forward that a holding deposit is now essential. I will keep the Holding Deposit payment ENTIRELY separate,. I will not offset this against the first months rent & tenancy deposit; & I will refund the Holding Deposit in its entirety once the AST is signed just to maintain its separate nature. It’s not very logical, but removing all room for ambiguity is sometimes worth the extra effort.

I will still require cleared funds prior to signing a tenancy agreement for the first months rent and the deposit IN FULL (the day before, or the same day will do). I don’t care what ARLA say, the risk of doing otherwise far outweighs the possible risk that a court will decide my rent money and tenancy deposit money are in fact a secret second holding deposit!

reader

12:57 PM, 1st July 2019
About 2 years ago

Ian,

Surely in both cases the T obtains a lease. But for less than 2 years it an AST.

Ian Narbeth

13:44 PM, 1st July 2019
About 2 years ago

Reply to the comment left by Kate Mellor at 01/07/2019 - 12:42
Kate
Thank you for explaining that.If ARLA is right (and I think they are wrong) then your practice would be unlawful because you took the money before the AST was completed. Whether you also took a holding deposit is irrelevant.

Ian Narbeth

13:46 PM, 1st July 2019
About 2 years ago

Reply to the comment left by at 01/07/2019 - 12:57
Dear reader
Your posts make no sense. What do you mean "both cases"? You second sentence is unintelligible.

Unless you can be clear what you mean I will not respond to you.

Kate Mellor

16:11 PM, 1st July 2019
About 2 years ago

Ian, that makes no sense at all to me!
Both rent and a refundable tenancy deposit are allowable charges under the Tenant Fees Act 2019, nowhere is it required that these must not be paid prior to signing the tenancy agreement. In fact my AST stipulates that rent is payable 'on, or before xth of the month', thus specifically allowing for early payment.
"Holding deposit
3(2) In this Act “holding deposit” means money which is 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)."
It doesn't say ALL MONEY PAID BEFORE THE GRANT OF A TENANCY, just money which the tenant paid before the grant of a tenancy with the INTENTION that is should be dealt with as a holding deposit.

In your very own words it is purely the belief of the tenant which would create the problem, therefore by following the argument to its logical conclusion we simply need to ensure that we have in writing what the tenant is paying and what it is for to show that they understood they were making an allowed payment of a different sort? It doesn't follow that if ARLA is right in suggesting this is the case that ANY AND ALL payments made prior to a tenancy ARE a holding deposit, just that you may be at risk of it being deemed one! So no, it's not unlawful if it's clearly a permitted payment just because it was made prior to the tenancy signing.

Ian Narbeth

16:16 PM, 1st July 2019
About 2 years ago

Reply to the comment left by Kate Mellor at 01/07/2019 - 16:11
I couldn't agree more Kate. That is the whole point of my article. I think ARLA are making a serious mistake. They interpret 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" and ignore the words that follow: "with the intention that it should be dealt with by the landlord or letting agent in accordance with Schedule 2”

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