Tenant security deposits for new development?

Hi John,

Thank you for the advice, when the time comes I will protect it and use it against he tenants security deposit. I assume it can still be non refundable it the tenant changes their mind?

Regards,

Roger

John we shall have to agree to disagree on this. The logistics of taking a holding fee are explained above. If you take a £100 holding fee to reserve the property and protect it you are causing a whole load of problems. So you take £100 and tenancy does not go ahead through no fault of the agent or landlord. You have protected it with DPS. Then tenancy does not go ahead. Try and get it out before the tenancy agreement ends. Also the Property Redress Scheme in its consumer guides does make a distinction between a holding fee and a security deposit:

"If a non-optional fee cannot be calculated in advance, relevant advertisements must make the existence of the charge clear, note that it is excluded from the advertised asking rent and provide information to allow Consumers to establish easily how the charge is calculated. It will aid clarity if the Agent provides worked examples of calculations of this kind.
Any optional or variable fee should be clearly outlined in the tenancy agreement and not merely in small print or hidden on a website. Non-optional and optional/variable fees that may be charged in addition to rent and a security deposit may include (but are not limited to):
• application processing fees such as reference and/or credit checks
• fees for the initial setting up of the tenancy, including inventory costs or other administration fees
• fees which must be paid in certain circumstances, such as charges for additional Tenants, the use of a guarantor or pets
• any future fees likely to be incurred by the Tenant, for example, costs to extend, renew or terminate the tenancy and inventory check out fees.
• Money for a ‘holding deposit’ including the sum that is required and the circumstances in which it will/will not be refunded - it will however be deemed unfair if a holding deposit is deemed to be non-refundable in any circumstance.

So in your view if a tenant pays his referencing fee which has to be shown separately to a holding fee, but pays no holding fee who pays for the advertising, tenancy agreement set up, inventory, DPS Prescribed Information? The landlord? No. The tenant. No because you havent taken anything except the referencing. So the agent or the landlord has spent 8 hours work doing the above and then he has to do it all over again for a new tenant.

Landlord and Tenant Law is different from consumer law. That's why we have the various acts to cover it.

Hi Gary,

You say "... protect it you are causing a whole load of problems". Well it's not me - this discussion is about the law and it's interpretation, not personal opinion, or what you or I think it should be. The penalties for getting it wrong could be up to 3 times the amount not protected (plus court fees, presumably).

The Property Redress Scheme, despite it's name, is a commercial company. They are entitled to their opinion, but they are not authoritative. I have heard agents and lawyers saying what you are saying, but I'm afraid the legislation is quite plain (unless I've misunderstood it) - and that IS authoritative!

I agree with them that a non-refundable deposit can be challenged.

Reply to the comment left by "Roger Pires" at "04/04/2015 - 08:42":

Hi Roger,

I have thought of two ways around this, though!

Firstly, we have 30 days to protect the deposit, so if the money is either taken as forfeit, or taken as rent within the 30 days, then I can see no problem.

Alternatively, take a fee up front, and reduce the 1st months rent. So (eg) take a £200 non refundable processing fee against a tenancy, and have a contract stating that the first months rent is £800, and £1,000 pcm thereafter. Same effect but the £200 is not used against rent, so can't be considered a deposit.

Reply to the comment left by "John Frith" at "04/04/2015 - 12:18":

Hi John,

Certainly one way of doing it.... lots of food for thought and i will have to make the right decision at the time. With different opinions on here i will also do a bit more research. Once again thanks for all the advice.

Regards,

Roger

I am hoping that no-one here is agrees to let at the time they are taking a holding deposit, because they would then be in breach of contract should they back out because of bad references.

That's why I wrote in a previous post that at the time such payment is made there is no tenant, no landlord, and no tenancy.

If a contract is created it should only be to 'hold' the property for some time so that checks can be made and a contract to let entered afterwards.

Until there is a contract to create a tenancy, any deposit cannot be a 'tenancy deposit', and thus there is no requirement to protect anything in a scheme.

Reply to the comment left by "Romain " at "04/04/2015 - 13:55":

Hi Romain,

This makes sense and i think this is the route i will take.... a holding fee with no agreement in place, if the tenant goes ahead then the holding fee will be deducted from 1st months rent, if not it will state that it's non-refundable..... seems completely fair to me.

Regards,
Roger

And I think now we are back where we started!!

It seems to me that the difference in our positions is that everyone else thinks that an agreement is not in place until the contracts are signed, whilst I hold that the agreement is in place when the parties verbally agree, even if it is subject to references, etc?

No one has come up with a coherent argument as to why my position is wrong, so let me point out the inconsistencies of the alternative.

The Act's definition of a "tenancy deposit" does not seem to differentiate between a deposit that is lodged for damages during the tenancy (a "damages" deposit?), and a "holding" deposit.

If, as everyone else seems to be arguing, the holding deposit does not fall under the act because the contract is not in place yet, then the same argument would be usable for the damages deposit!

That implies that if the damages deposit is handed over before the contract is signed (which is usual), then the 30 days grace to lodge with an approved scheme starts from when the contract is signed, rather than the date the monies are handed over?

I don't think that is how the Act was intended to work. It would leave the deposit in the hands of the landlord, unprotected, for an indeterminate period of time.

Also, having re-read the legislation, I am not even sure it is a requirement that a contract is in place. Can anyone point this out to me?

The Act says:

"“tenancy deposit”, in relation to a shorthold tenancy, means any money INTEDED to be held (by the landlord or otherwise) as security for—"

(Capitals are mine). So it is the INTENT that is important.

It seems likely that this is what those who drafted the legislation would have intended?