Should letting agent or landlord keep 12 months upfront rent?

by Readers Question

11:09 AM, 11th August 2016
About 2 years ago

Should letting agent or landlord keep 12 months upfront rent?

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Should letting agent or landlord keep 12 months upfront rent?

I use a letting agent to manage a few of my student HMO’s. The current tenants have paid a full twelve months up front as they are international students, however my letting agent pays me on a monthly basis. safe

I phoned up NALS as I was researching a letting agent for another property in a different part of the country and found out that the only provide client money protection for up to three months of the rent.

I have questioned my HMO letting agent and the answered that they do this to offer mutual protection for landlord and tenant in case the landlord property gets repossessed etc.

I was wondering is this a valid argument? My concerns are of course what happens if the agent goes bust/disappears and also on a more monetary stance I can be earning interest (however little) on funds which are actually mine and improve my cashflow (of course the agent would subtract all their fees on the bulk payment)

I would appreciate the views from other landlords that use agents or agents themselves.

Kind Regards

Raj



Comments

Luke P

11:31 AM, 11th August 2016
About 2 years ago

Is the agreement a monthly one?

Anything over an above the contractual rent due will be deemed a deposit.

Raj Kirpalani

11:40 AM, 11th August 2016
About 2 years ago

The tenancy agreement specifies a rent figure per calendar month. A 1.5x deposit was already taken and protected by the agents in TDS. Are you saying that because the tenants have given the full twelve months that it should be treated as a deposit? I dont understand? The agent pays me the monthly figure but hold the funds that have been provided in full by the tenants as they are international. My concern is what happens to the money if the agent goes bust and the fact it appears NALS only protects up to 3 months in their client protection scheme for agents

Graham Bowcock

11:56 AM, 11th August 2016
About 2 years ago

Hi Raj

I have heard of this scenario occasionally and can see both sides of the coin (as a letting agent). If the tenancy agreements provide for monthly rent it begs the question as to why the tenants paid 12 month rent up front. I like things clearly set out in black and white; if the rent period is 12 months then that should be stated in the agreement. When the tenants pay this it should be passed to the landlord. I make sure that all our agreements are consistent with what the tenant is actually being asked to pay.

As for passing money to the landlord, we would always pass over what we hold, although in some cases we may hold back (by agreement) a float for repairs. This seems to be different than what your agent is asking. We cannot instruct repairs unless we hold funds to discharge accounts.

My firm is a member of the RICS and the clients' money protection scheme coves all monies we hold - it is not related to any rental period. As money is held in a clients' account (as hopefully yours is) then it should be available irrespective of the financial standing of the firm.

In a nutshell I think that the money collected is yours and should be paid to you.

Regards

Graham

Luke P

11:58 AM, 11th August 2016
About 2 years ago

Reply to the comment left by "Raj Kirpalani" at "11/08/2016 - 11:40":

I was the test case for this definition in the early days of protected deposits. It doesn't answer your question, but does add another element. What would they do if you chose to switch agent? I see no reason they should keep it.

Steve From Leicester

12:58 PM, 11th August 2016
About 2 years ago

I'm an agent, and on the rare occasion where we find ourselves in this situation I make it a condition of the agreement that we hold the money and drip feed it to the landlord on a month-by-month basis as it falls due. I do this for the very reason given by Raj's agent - namely that a landlord could have his property repossessed, leaving the tenant with nowhere to live. In a scenario like that a tenant might feasibly have a claim against us. Even if that claim was ultimately unsuccessful we'd have the time and expense of defending it, as well as the vicarious damage to our reputation.

On the other hand, agents too have been known to pocket the money and disappear . . . so if the boot were on the other foot and I was the landlord I would want to hold the money.

Romain Garcin

13:19 PM, 11th August 2016
About 2 years ago

An agent must pass all money received on behalf of the landlord, and must do so promptly, unless the landlord has expressly agreed otherwise.

I can't see a single good reason why a landlord would agree to his agent keeping hold of any money.

Mandy Thomson

13:29 PM, 11th August 2016
About 2 years ago

Reply to the comment left by "Raj Kirpalani" at "11/08/2016 - 11:40":

The Court of Appeal determined in Johnson V Old that advance rent payments do not require protecting as a deposit provided these really are payments toward the rent and not for any other purpose such as a disguised deposit: http://www.rla.org.uk/landlord/guides/do-you-need-to-protect-advance-payments-of-rent-as-tenancy-deposits.shtml

Wayne Hoban

14:26 PM, 11th August 2016
About 2 years ago

I have this on a regular basis with my student lets. When I let to overseas students, they pay the 12 months rent upfront as they can not be referenced or guarantored. The letting agent then pays the whole amount to me in September, minus the tenant find and monthly rent collection fee annualised (appreciate that they are not collecting the rent monthly, but everyone has to earn a living!)

If a letting agent received the whole amount and refused to forward the rent in full, they would be dismissed immediately.

If one of my properties were to be repossessed, the tenant would have a claim against me and my insurance (I am yet to see a tenancy from a letting agent where they would be successfully sued).

Lenders do not particularly like rents upfront, as they are unable to take over the rent collection in the event of repossession, but I am sure they would chase the mortgagor through all legal channels to recover their costs.

If your letting agent continues to refuse to pay you your rent, change letting agent or don't let to overseas students (which would would be a shame due to the agent).

Raj Kirpalani

14:50 PM, 11th August 2016
About 2 years ago

Reply to the comment left by "Steve From Leicester" at "11/08/2016 - 12:58":

Thanks for all the comments,

Steve but what happens if your company goes bust or not you but the letting agent runs away with the money. The question is do the letting agents client protection schemes protect the full rental amount and thus the landlord could have a claim against them?

Raji

Raj Kirpalani

15:10 PM, 11th August 2016
About 2 years ago

Reply to the comment left by "Wayne Hoban" at "11/08/2016 - 14:26":

Wayne they are managing my property not only doing the tenant find - although i presume that would not change your stance on this matter?

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