Tenant security deposits for new development?

by Readers Question

13:45 PM, 1st April 2015
About 4 years ago

Tenant security deposits for new development?

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Tenant security deposits for new development?

We are in full planning for developing 8 x 1 bed flats. Once approved we will start to market them, if we have a prospective tenant who after passing credit checks would like to reserve one, would we be able to charge a non-refundable security deposit?

If so would we have to put it into a deposit scheme like we would for a tenancy deposit.

Regards

Rogersecurity



Comments

Gary Nock

19:12 PM, 1st April 2015
About 4 years ago

Yes you can. And no you dont. Take £100 as a holding fee refundandable against first months rent. So its not a deposit so does not need protecting. You only take the deposit when they move in. But your terms and conditions should reflect the fact that if the applicant passes referencing and accepts the offer of tenancy, then any change of mind on their part means that referencing fees and holding fee are not refundable.

Roger Pires

19:17 PM, 1st April 2015
About 4 years ago

Hi Gary,

Perfect, thanks for the advice.

Regards,

Roger Pires

John Frith

14:51 PM, 2nd April 2015
About 4 years ago

Yes you can. And yes you do.

The relevant legislation is:

" 212 Tenancy deposit schemes

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(8)In this Chapter—

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“tenancy deposit”, in relation to a shorthold tenancy, means any money intended to be held (by the landlord or otherwise) as security for—
(a) the performance of any obligations of the tenant, or
(b) the discharge of any liability of his,

arising under or in connection with the tenancy."

Although many, many people think as Gary does, I think the wording of the Act is pretty clear. The word "deposit" in "security deposit" is a bit of a giveaway.

Although you may see a holding deposit as non-refundable, my understanding is that that can be challenged in law. Now a fee (especially if it's by an agent, rather than the prospective landlord) is a different matter.

Roger Pires

16:43 PM, 2nd April 2015
About 4 years ago

Reply to the comment left by "John Frith" at "02/04/2015 - 14:51":

Hi John,
Thank you for the advice, from what you're saying if i word it as a fee and not deposit do you not think that would suffice?

Regards,

Roger Pires

Romain Garcin

16:52 PM, 2nd April 2015
About 4 years ago

Reply to the comment left by "John Frith" at "02/04/2015 - 14:51":

A deposit does not imply a "tenancy deposit".

A "holding deposit" is not paid by the tenant, is not held by the landlord, and is not intended as a security for any obligation arising in connection with the tenancy.
All of the above because there is simply no tenancy and, in fact there should not even be a contract to create one at that point.

John Frith

16:54 PM, 2nd April 2015
About 4 years ago

Reply to the comment left by "Roger Pires" at "02/04/2015 - 16:43":

That's my understanding.

John Frith

17:10 PM, 2nd April 2015
About 4 years ago

Reply to the comment left by "Romain " at "02/04/2015 - 16:52":

Although this is one subject I've researched, I'm not an expert, so I'm happy to be corrected.

You say: "A deposit does not imply a “tenancy deposit"", and yet looking at the wording (that I quoted) it fits! Since (in most cases) the only relationship between the two parties is that one intends to rent off the other, what else would it relate to!

The argument you use in your last para flies against my understanding. The written contract is demonstrable proof of a contract, but the actual contract is started the moment both parties make a verbal agreement. Remember the days when "my word is my bond"? (No, neither do I, but that's where it all started).

And if your last para is not true, then the middle para is untrue.

Gary Nock

7:39 AM, 3rd April 2015
About 4 years ago

John, Romain is right. The relevant wording is "arising under or in connection with the tenancy.”

No tenancy. Then any holding fee is not a deposit. A holding fee is exactly that. A fee. It is a fee conditional (as set out in agents or landlords terms and conditions) on the applicant passing referencing. If they pass and move in then it is refunded against first months rent providing the contractual condition is satisfied.It is used by hundreds of agents to prevent the situation where a tenant passes referencing, decides to take the tenancy, and then backs out leaving the landlord or agent with expenses for tenancy agreement, inventory and advertising. The contract for the application process is a different contract from the tenancy agreement. If the tenant fails to pass the referencing then the holding fee is returned. Under consumer guidelines recently issued a holding fee is only deemed unfairly held if it is " not refundable under ANY circumstances". If there are circumstances when it is, like above, then there is not an issue.

John Frith

23:54 PM, 3rd April 2015
About 4 years ago

Hi Gary,

I'm aware of the rational that you are using - I have had it repeated to me many times. However you, (and Romain), state your opinion as if it were self-evident fact - which I don't believe it is.

By stating "No tenancy" (at the start of your second para), you are ignoring the argument I made in my previous post that there IS an agreement in place. The passing of money from one to party to another confirms this.

It's like a salesperson saying "Give me £100 pounds to reserve the sofa you want to buy. You can come back later today and pay me the rest, but it's not legally a deposit because we won't have a contract in place until you bring the rest of the money!".

If your "holding fee" (or whatever you choose to call it) is, (as you state), going to be refunded against rent, then it is "money intended to be held (by the landlord or otherwise) as security for— (a) the performance of any obligations of the tenant, or (b) the discharge of any liability of his" - ie it's a "tenancy deposit", and should therefor be lodged in a scheme. If it talks and walks like a deposit, then it is a deposit.

John Frith

8:34 AM, 4th April 2015
About 4 years ago

Reply to the comment left by "Roger Pires" at "02/04/2015 - 16:43":

Roger, as I said, I'm not an expert, so I'm going to correct myself. My understanding is that if the money you take initially is to be "held" untill it is decided whether it is to be kept (as a fee for not going ahead with the contract), or credited against rent (if it does go ahead), then calling it a fee won't help. Legally it's a deposit, and needs to be protected.

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