Forfeiture of holding deposits/reservation fees

Forfeiture of holding deposits/reservation fees

10:30 AM, 9th April 2019, About 3 years ago 14

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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

by sam

20:30 PM, 13th April 2019, About 3 years ago

We hv never taken a single ‘holding deposit’ in 30 years. Only ever had 1 prospective tenant back out (recent).
Why bother with risking the minefield ?

by Ian Narbeth

10:04 AM, 15th April 2019, About 3 years ago

Reply to the comment left by Rob Crawford at 13/04/2019 - 10:36
Hi Rob
Good idea but I don't think giving reasons in advance is sufficient. Para 5 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." Words in CAPITALS for my emphasis.

At the time the holding deposit is received, the landlord does not have that belief under para (a) because the tenant has not pulled out. Secondly "does not give" is not the same as "did not give". The natural meaning is that the notice has to be given in response to and after the tenant's withdrawing.

Even if those points weren't fatal, you would have to show that the "receipt" constituted notice in writing. Notices are highly technical and there are numerous court cases about them. Given that a failure by a corporate landlord to have two directors (rather than one) sign a prescribed information form was held to mean the form had not been served, the opportunities for technical points to be taken are endless.

Finally, the practical point is it does not matter if the Court of Appeal would agree unanimously that the judge was wrong and had fundamentally misunderstood the law. A nasty tenant will dob the landlord in to the Council who won't hesitate to write threatening letters. The landlord then has to embark on a game of risk. Spend time and money (if he has to take legal advice) defending himself. If he wins he has probably spent more than the value of the deposit (limited to one week's rent) in terms of his own time, even at £10 an hour. If he loses he has to repay the deposit. By definition he is now found to be in breach of the Act and is 50% of the way to being put on the register of rogue landlords.

by Ian Narbeth

10:13 AM, 15th April 2019, About 3 years ago

Reply to the comment left by sam at 13/04/2019 - 20:30
Hi Sam
You are fortunate. Other landlords are not so lucky.
Furthermore, if it becomes standard practice for landlords not to take any holding deposits, it will be relatively risk-free for a tenant to "reserve" more than one property, thereby wasting the time of the landlords the tenant does not proceed with and costing them money in lost rent.

by Heather G.

11:08 AM, 15th April 2019, About 3 years ago

Reply to the comment left by Rob Crawford at 13/04/2019 - 10:36
Perhaps ARLA/NLA/RLA etc can add this template "receipt" to the documents available to their members?


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