Cashback Clause in an AST?

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  • Cashback Clause in an AST?

    Having suggested this in another post, it got me thinking. Would a clause offering cashback to a tenant be legal? Any issues with having such a clause?

    The scenario I'm thinking is that the clause would offer cashback to a tenant, payable on vacating a property, that would increase based on the length of the time the tenancy has been in force.

    Benefits?
    1. An incentive for the tenant to stay long term.
    2. Should provide for a willing tenant to vacate at the end of the tenancy. No tenants overstaying their welcome, if they do they forfeit the cashback.
    3. Less deposit disputes (as the tenant will be keen to agree the deposit return in order to get the cashback without fuss).

    It would have to be a decent amount to motivate the tenant to comply, rather than a gimmicky amount. Say cashback of the value of a week's rent for every 12 months of tenancy? That's the equivalent of almost 2%. Obviously a landlord can try and build this in up front if possible.

    Downsides?
    1. Slight hit on profit.

    Can anyone think of any problems with this?

  • #2
    That cashback would legally be a deposit, would need protecting, you liable to 3x(overall total) deposit if not fully legally handled
    I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

    Comment


    • #3
      Properly done I don't think that a cashback is a tenancy deposit. It's not money belonging to the tenant and held by the landlord, but rather a discount.

      Now, of course if it is a disguised deposit then you should expect issues at some point.

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      • #4
        If it's legally recognised as a deposit, then of course the idea is dead in the water.

        But is it a deposit? A deposit is the tenant's money, that the landlord is looking after for the duration of the tenancy.

        What I'm talking about here would be the landlords money that he chooses to give to the tenant providing certain conditions are met.

        Bit of a difference?

        Comment


        • #5
          A tenancy deposit is " 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."

          If the agreement was set up specifically as a discount or a rent rebate, I don't think it meets the definition (without some serious manipulation).

          But there's a risk that any rebate "earned" after 12 months (say) which is not paid out at that point, but held by the landlord until the end of the contract and only paid if the tenant met some kind of condition, then that would meet the definition. The unpaid rebate would have become some kind of deposit.

          If the terms of the rebate essentially precluded the tenant from claiming some right they're otherwise entitled to, such as remaining in a property after being given notice or being able to dispute a deposit deduction, (or penalised them for doing it ) it would probably be unfair.

          More to the point, I'd have thought the courts would not be very happy with the scheme, because it looks like an attempt to avoid the deposit regulations, even if it isn't.
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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          • #6
            This sort o thing is common in the business world, I have negotiated many such overiders and bonus schemes.
            I like to think it is workable in this scenario, prepared properly (implemented fairlly) with no ambiguity/loopholes. Or it could become very messy!
            Not sure I would wish to be the first....any precedents?

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            • #7
              Originally posted by Landlord1206 View Post
              Not sure I would wish to be the first....any precedents?
              That. The arguments about deposits could certainly be made. Not sure I would want to be the test case to find out what the court thinks.
              I am not a lawyer, nor am I licensed to provide any regulated advice. None of my posts should be treated as legal or financial advice.

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              • #8
                OK, on further investigation, it wouldn't work.

                RLA Advice: Other ways which have been suggested which will not work are:-
                • Charge rent and offer cash back to the tenant if the property is left in a good condition with the rent paid in full – RLA legal advice is that this arrangement falls foul of the tenancy deposit scheme. The cash back element would have to be paid into the custodial scheme or protected under the statutory insurance deposit scheme.

                You're right, this is common in the business world. Whether cashback, vouchers etc. if you buy something or are still a customer after X period. There is probably a way to administer this and not fall foul of the law but as Landlord1206 says, would need a precedent to be sure.

                Nice thought will it lasted!

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                • #9
                  I think your original idea for funding it through admin fees is also about to expire

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                  • #10
                    Originally posted by security2 View Post
                    OK, on further investigation, it wouldn't work.

                    RLA Advice: Other ways which have been suggested which will not work are:-
                    • Charge rent and offer cash back to the tenant if the property is left in a good condition with the rent paid in full – RLA legal advice is that this arrangement falls foul of the tenancy deposit scheme. The cash back element would have to be paid into the custodial scheme or protected under the statutory insurance deposit scheme.
                    I disagree as previously mentioned.

                    The RLA has not a very good track record and they do not give any explanation here.

                    Comment


                    • #11
                      Originally posted by jjlandlord View Post

                      I disagree as previously mentioned.

                      The RLA has not a very good track record and they do not give any explanation here.
                      This is the link to the RLA website with the above explanation
                      https://www.rla.org.uk/landlord/tena...rnatives.shtml

                      I'm inclined to agree with you. After all, what amount would you be protecting, as you would have no idea how much it would end up being? Amount depends on length of tenancy, which you wouldn't know at the start of tenancy. But fundamentally, it's not a deposit. It's not the tenant's money which the landlord is holding. It's the landlords money which he is offering to give to the tenant under certain circumstances. The deposit is treated seperately, if one is taken.

                      It would probably need a lawyer to sort the wording. A simple Google search hasn't found anything where it's been done before. However the benefits are such that it might be worth a further investigation.

                      But as said by others earlier, no precedent, so lots of risk.

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                      • #12
                        I certainly wouldn't call it 'cashback' or anything that implies that it was once the tenants money. I don't know if it works as a gift with reservation of the landlords money?

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                        • #13
                          Ah, there's no need for cash inducements. Inflation will give a little extra money to tenant every year that tenancy continues at the same rent. If tenant doesn't behave himself, put his rent up.

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                          • #14
                            I would do this in a rather simpler way - you could have a progressively de-scaled rent.

                            I am not going to make you pay a deposit at all -- however "I am charging you a rather high rent the first 6 months, but if all goes well and we mutually decide to continue the tenancy I would reduce the rent by £30 per month at 6 months, and by £50 at one year".

                            Comment


                            • #15
                              Ignore most above.
                              T is required to return the property in similar condition.
                              If a dispute both LL & T can use ADR/SCC.
                              With your suggestion LLs will soon be paying Ts to rent their property.
                              App next year the max permissible deposit will be reduced to 1 cal month.
                              More fun and games?

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