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.