Watch those pennies or it could cost you dear!

by Ian Narbeth

10:00 AM, 23rd May 2019
About A year ago

Watch those pennies or it could cost you dear!

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Watch those pennies or it could cost you dear!

Landlords and agents will need to be especially careful taking holding deposits when the Tenant Fees Act 2019 comes in to force on June 1st. No more than “one week’s rent” may be taken. That is defined as “the amount of the annual rent payable in respect of the tenancy immediately after its grant, renewal or continuance divided by 52.”

Many rents are quoted as a monthly figure. To get the weekly rent, multiply the monthly rent by 12 and divide by 52. What agents and landlords must not do is round to the nearest £1 without checking that they may have rounded up when instead they must round down.

A monthly rent of £550 multiplied by 12 and divided by 52 gives £126.92 (to two decimal places). If this is rounded to £127 an extra £0.08 has been taken and this is a prohibited payment. Most tenants will not bother the council about an overpayment of £0.08. One trusts that Councils have better things for their officers to do than chase landlords for pennies.

However, that £0.08 overpayment will forever “lurk” as a prohibited payment. If it is spotted by the tenant or his advisers it may be used to ambush the landlord’s section 21 application. That application cannot be brought until the prohibited payment of £0.08 has been repaid. Even if the tenant has consented to the holding deposit being applied towards the rent or tenancy deposit: ‘Tenant Fees Act 2019 – Elephant trap for the unwary!‘ this will not prevent the point being taken.

The safe course is for landlords and agents to round down the holding deposit to the nearest £1 or £5 rather than risk an overpayment.

There is a simple Excel formula to round down a number in cell A1.

=FLOOR(A1,1) will round down to the nearest £1. The formula =FLOOR(A1,5) will round down to the nearest £5.

Click Here to download a spreadsheet showing these calculations or see below.


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Comments

Clint

11:50 AM, 23rd May 2019
About A year ago

I wonder if the following scenario has been thought out:

If say a property is available on 1st June 2019 and the landlord and tenant agree that the tenancy should start on say a date up to 10th June 2019 (as the tenant does not have the funds ready and states that the funds will be ready by 10th June) and the tenant leaves a holding deposit of one week or less, agreeing that if the tenant does not take up the tenancy by this date, the tenant would lose the deposit, would it be a problem in taking another holding deposit where there is a further agreement with a new start date in the future assuming that the tenant still wishes to take up the accommodation?

Would it be considered that the two holding deposits are considered as one where they are added together?

Hamish McBloggs

12:18 PM, 23rd May 2019
About A year ago

Reply to the comment left by Ian Narbeth at 23/05/2019 - 10:52
Ah, holding deposits.

Looking for my glasses now ...

But if an old tenancy where the tenancy deposit was 2 months?

Hamish

Ian Narbeth

12:27 PM, 23rd May 2019
About A year ago

Reply to the comment left by Clint at 23/05/2019 - 11:50
Clint
No, you cannot take two holding deposits at the same time for the same property. The second deposit will be a prohibited payment unless the first holding deposit is repaid or has been lawfully forfeited.

Ian Narbeth

12:39 PM, 23rd May 2019
About A year ago

Reply to the comment left by Hamish McBloggs at 23/05/2019 - 12:18
Good question Hamish.
The TDS has some guidance https://www.tenancydepositscheme.com/resources/files/How%20the%20Tenant%20Fees%20Bill%20will%20affect%20deposit%20disputes.pdf which says:

"There is no requirement to refund deposit amounts exceeding the applicable 5 or 6 week limit, where a fixed-term agreement entered into before 1 June 2019 becomes a statutory periodic tenancy.
Where a tenant renews their tenancy by signing a new fixed term agreement on or after 1 June 2019, any amount of their existing deposit which exceeds the applicable 5 or 6 week rent limit for the new tenancy must be refunded."

Clint

13:29 PM, 23rd May 2019
About A year ago

Reply to the comment left by Ian Narbeth at 23/05/2019 - 12:27
Thanks Ian. What I had meant was after 10th June (in my earlier comment), the deposit would be held by Landlord in which case, it would be forfeited. So it seems following this, the Landlord could take another holding deposit. Is that correct?

Ian Narbeth

13:46 PM, 23rd May 2019
About A year ago

Clint, Yes provided you had agreed the "deadline for agreement" was 10th June and you have followed the right procedures. The Guidance for Landlords states:

"A holding deposit can only be retained where a tenant:

fails to take all reasonable steps to enter into a tenancy agreement and the landlord or agent takes all reasonable steps to do so (unless a landlord or agent imposes a requirement that breaches the ban or acts in such a way to the tenant or relevant person that it would be unreasonable to expect a tenant to enter into a tenancy agreement with them).

You must return the holding deposit if you impose a requirement that breaches the ban or act in such a way towards a tenant or a relevant person that it would be unreasonable to expect them to enter into a tenancy agreement with you (e.g. a landlord or agent asking a tenant to a pay a fee for referencing, seeking to include an unfair term in the tenancy agreement or acting in an aggressive or harassing way).

You must set out in writing why you are retaining a tenant’s (or a relevant person’s) holding deposit within 7 days of deciding not to let to them if this is before the ‘deadline for agreement’ or within 7 days of the ‘deadline for agreement’ passing, otherwise you forfeit the right to retain their holding deposit and must return it to them.

Even where you are entitled to retain a tenant’s holding deposit, you should consider whether it is necessary to do so. We encourage landlords and agents to decide on a case-by-case basis whether to retain part of the deposit and understand that they may only need to cover specific costs which have been incurred (for example, referencing checks). You should be able to provide evidence of your costs to demonstrate that they are reasonable."

The last paragraph is not taken from the Act and pre-supposes that landlords do not view loss of opportunity to let to somebody else as a financial loss.

You need to be exceptionally careful because under the Act any mis-judgment by a landlord involves immediate and serious liability.

Clint

15:20 PM, 23rd May 2019
About A year ago

Thanks Ian for taking the time to give such a detailed explanation. It seems like in just taking a holding deposit there is a minefield of things that could go wrong.

It is beginning to look like it is better to keep advertising until the day the tenant is due to move in before collecting any money.

Are the Conservatives trying to destroy BTL altogether? At least I have had the satisfaction of not voting for them today after a lifetime of voting for no other party but the conservatives.

After 24 years in the business it seems like it is time to sell up even before the section 21 ban comes in.

Hamish McBloggs

17:28 PM, 23rd May 2019
About A year ago

Reply to the comment left by Ian Narbeth at 23/05/2019 - 12:39
Appreciated

H

JB

20:12 PM, 25th May 2019
About A year ago

Reply to the comment left by Ian Narbeth at 23/05/2019 - 12:39
Please can you clarify the term when 'an agreement is entered into'?
Is it the date the agreement is signed or the date the tenancy starts?

Ian Narbeth

14:13 PM, 3rd June 2019
About A year ago

Reply to the comment left by JB at 25/05/2019 - 20:12
JB, an agreement is entered into when the tenancy is signed and date, not the start date of the tenancy term if later. In practice a landlord would take the deposit at the time the tenancy is signed, even if the term does not start until a future date.

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