Forfeiture of holding deposits/reservation fees

by Ian Narbeth

10:30 AM, 9th April 2019
About 2 months ago

Forfeiture of holding deposits/reservation fees

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Forfeiture of holding deposits/reservation fees

Imagine this scenario. A prospective tenant, T, answers an ad and phones up and arranges to view a property. T meets the Landlord, L, and agrees to rent the property for 12 months starting in 14 days’ time at £900 per month. L asks for and T pays a reservation fee of £200 to take the property off the market and T signs an acknowledgement that the fee will be forfeited if T backs out. L takes up references and they are satisfactory. L agrees to meet T at the property at the end of 14 days to sign the tenancy.

The evening before the meeting T texts L and says: “I have decided not to proceed, because I have found another place I like better. Sorry to let you down. You can keep the £200.” L is understandably annoyed and retains the £200.

If this occurs before 1st June 2019 L is probably OK. However, once the Tenant Fees Act 2019 comes into force L may be shocked to receive a few weeks after T was due to move in a letter from T or his lawyer demanding the return of the £200 and threatening L with a fine of up to £5000 because L is in breach of the Tenant Fees Act 2019.

What is the breach? It is that L did not give T notice in writing within 7 days of the date T was supposed to move in that L was forfeiting the reservation fee because T had decided not to proceed. That is the effect of paragraph 5(1)(b) of Schedule 2 to the Act which says that even where there is a reason for keeping the fee it must be returned if the recipient did “not give the person who paid the deposit a notice in writing within the relevant period explaining why the person who received it intends not to repay it.” Alice in Wonderland stuff, you might think!

It gets worse. If what I have described were not bad enough, the Act does not define “notice in writing”. In law text messages are not normally considered notices in writing. If L simply sends a text message in response to T that may not count as “notice in writing”. L may have to serve formal signed written notice on T at T’s current address. L may have the address from taking up references but the Act does not say what happens if it is impossible to find T. As drafted the Act puts the onus on L.

Now if the case gets to court, L might well succeed if the judge takes a dim view of T’s behaviour. Will L risk it? If T wins then by definition L has breached the Act and may be liable for the fine. In the circumstances how many landlords would risk it? It will be safer (and L’s solicitor will probably advise) to repay the £200.

That will usually be the end of the matter but a really crooked T can still ask the Council to go after L, because a prohibited payment has been taken. One can envisage that some tenants might subtly ask for even more than the return of the £200 (perhaps as compensation for the time expense they have been put to in pointing out to L the error of his ways) in exchange for not pursuing L.

The Act is a blackmailer’s charter.

 



Comments

SimonR

11:38 AM, 9th April 2019
About 2 months ago

"The evening before the meeting T texts L and says: “I have decided not to proceed, because I have found another place I like better. Sorry to let you down. You can keep the £200.” L is understandably annoyed and retains the £200.
If this occurs before 1st June 2019 L is probably OK. However, once the Tenant Fees Act 2019 comes into force L may be shocked to receive a few weeks after T was due to move in a letter from T or his lawyer demanding the return of the £200 and threatening L with a fine of up to £5000 because L is in breach of the Tenant Fees Act 2019."
Sorry Ian but think you are wrong with this statement, You would still be able to keep the holding fee, here is an excerpt taken from the recently published guidance
"You can only retain a tenant’s holding deposit if they provide false or misleading information which reasonably affects your decision to let the property to them (i.e. calls into question their suitability as a tenant, this can include their behaviour in providing the false or misleading information), they fail a right to rent check, withdraw from the proposed agreement (decide not to let) or fail to take all reasonable steps to enter an agreement (i.e. responding to reasonable requests for information required to progress the agreement) when the landlord and/or agent has done so. Where you wish to retain the holding deposit, you must set out in writing the reason for this within 7 days of deciding not to enter the agreement or the ‘deadline for agreement’.
The tenant would be at fault as they withdrew from the agreement so you would be entitled to keep the holding deposit.

Ian Narbeth

14:40 PM, 9th April 2019
About 2 months ago

Reply to the comment left by SimonR at 09/04/2019 - 11:38Hi SimonR. Please refer to the text of the Act, not just the guidance. Schedule 2 deals with holding deposits. Paragraph 5 of Schedule 2 says:
"5 (1) The person who received the holding deposit must repay it if—
(a) that person believes that any of paragraphs 8 to 12 applies in relation
to the deposit, but
(b) that person does not give the person who paid the deposit a notice in writing within the relevant period explaining why the person who received it intends not to repay it."
Paragraph 3 says:
"Subject as follows, the person who received the holding deposit must repay
it if—
(c) the landlord and the tenant fail to enter into a tenancy agreement
relating to the housing before the deadline for agreement."
Paragraph 10 says:
"Subject to paragraph 13 [which is not relevant to my example], paragraph 3(c) does not apply if the tenant notifies the landlord or letting agent before the deadline for agreement that the tenant has decided not to enter into a tenancy agreement.
The problem is that 5(1)(b) expressly refers to paragraphs 8 to 12 and so captures para 10. So yes, the landlord can keep the holding deposit but only if he gives the notice in writing required by 5(1)(b). It will be very easy to overlook this and incur serious liability.

SimonR

14:47 PM, 9th April 2019
About 2 months ago

Reply to the comment left by Ian Narbeth at 09/04/2019 - 14:40
Sorry yes I should have noted that as well, but this brings about a more serious issue I think. In trying to do the right thing the government has once again created a mine field that will only get clarity once contented in court at great cost and a precedent set. How many time does this have to happen before they stop meddling or at least use a modicum of common sense.

Ian Narbeth

15:22 PM, 9th April 2019
About 2 months ago

Reply to the comment left by SimonR at 09/04/2019 - 14:47
Completely agree about the minefield. All a tenant needs to have is a sniff of an argument and the landlord has a dilemma. Do I fight this or do I repay? If I fight and win, I won't recover for my time. If I lose I have to repay and then lay myself open to a large fine. Shall I pay for legal advice on whether or not the payment is permitted or prohibited? Even with advice the solicitor is likely to say. If you win you will be out of pocket. If you lose it could cost you £5000/£30,000 in addition. Best advice is to repay.

Dylan Morris

9:05 AM, 10th April 2019
About 2 months ago

Am I missing something here ? Surely the landlord just needs to give notice within the 7 day period. This is a letter sent First Class Tracked and Signed to the tenant’s current address that they have provided and also as a back up, an email again to the email address they have provided. As the tenant here has passed referencing then an application form (providing addresses) surely would have been taken and signed by the prospective tenant. I doubt a judge would rule against the landlord if he has done everything possible to provide the notice.
My concern would be more around the ridiculously low maximum one week’s rent holding deposit that the new legislation provides.

Ian Narbeth

10:11 AM, 10th April 2019
About 2 months ago

Reply to the comment left by Dylan Morris at 10/04/2019 - 09:05Hi Dylan
No, you are not "missing something" but surely you see my point? In the scenario I described the vast majority of landlords would not think to write formally to the person who has just mucked them around and has said "You can keep the £200". Why waste further time on a time-waster? Of those bureaucracy-loving landlords who might write, how many would know, unless it were publicised that (a) they had to give formal notice in writing, not just reply to the text message, (b) would have to repay the £200 and (c) might be liable for a large fine if they did not? The law has not been thought through and will lead to gross unfairness and will empower the Tenants from Hell.

Dylan Morris

10:15 AM, 10th April 2019
About 2 months ago

Reply to the comment left by Ian Narbeth at 10/04/2019 - 10:11I agree Ian it is rather ridiculous and I wouldn’t have know about it or even thought about it unless you had raised it here. Clearly the Government have it in for us landlords and want to trip us up at every opportunity. At least the penny has dropped with us now, the lightbulbs have come on and we’re aware of what they’re up to. All landlords need to help and look out for each other by joining forums such as this one. (Hence why I pay my £10 a month to support Mark and Neil and the rest of the team).

bob the builder

8:29 AM, 13th April 2019
About a month ago

So in this case it seems reasonable to me to keep on showing the property after someone has said they wish to take it - maybe at a higher rent; after all this is clearly now all out war, the days of being nice & reasonable about these things is well & truly over...

Rob Crawford

10:36 AM, 13th April 2019
About a month ago

Could a landlord / agent issue a written receipt once the holding deposit is received and on that receipt it specifies that if for reasons stated in the tenant fee ban legislation the tenant withdrawals then notice is given to retain the holding deposit. So the receipt resorts to notice of landlords intent to retain the deposit if that withdrawal condition arises at a later date?

Chris Daniel

12:22 PM, 13th April 2019
About a month ago

Another legislative ' Dogs dinner ' either they have very clever people writing this legislation with devious intent for landlords ( would not dismiss that notion ) or some very dumb people, paid too much who need alternative employment.
From the deposit legislation, [ I'm hearing increasingly of claims against Landlords, likely since the demise of PPI ] the How to Rent and Tenancy P.I including the House of Lords amendment at the final stage that allowed the judiciary to come to their current interpretation over Non-service of Gas cert. to the Fitness (sic) for Human Habitation abuse and now Tenant fees ban !
As for solicitors 'Blackmailing' Landlords, this is an exact example of my previous article ' Lack of Justice - Legal Blackmail ' which gave the Deposit example but here it could be used for other purposes, i.e. Holding fee or tenant Fee ban transgressions.

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