Current status of Holding deposits

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    Current status of Holding deposits

    Quick question on the current status of holding deposits in England (and I guess a question that goes to the heart of the harm that will be caused to tenants by preventing any sort of upfront fees).

    - I currently have an enquiry from a very desirable prospective Japanese tenant with two kids (as an aside, I have had many such tenants, and given current legislative changes grossly discriminate in their favour versus the UK born and bred variety - and come Corbyn will probably only accept foreign tenants on temporary visas)

    - They are currently in Japan and are funded by the Japanese government.

    - Tenancy is scheduled to start in late February 2019, and they will arrive only days before his course starts

    - For various reasons they need a confirmed place to stay (I would if I were arriving in Japan), and they also require a known future address in order to apply for school places (urgent, and again the numpties that create Right to rent legislation don't realise that tenants have to do things like send their kids to school and to plan for this).

    - I am 100% sure existing tenants will have departed

    - I cannot actually allow a tenancy to start (them actually moving in) because their visa status is not yet certain, nor for that reason can they commit for 100% certain - or at least need some means of withdrawal, and I am happy to accept visa failure or some other circumstances as a reason to permit the contract to be declared frustrated.

    - In previous years I would have collected the tenancy deposit and rent on their arrival, and required only a holding deposit to be payable now (the evident risk to me is that I will end up with a long void if the holding deposit is required to be... well.. held). All parties accept this and that the holding deposit will be relatively large (say £400 or so). The contract is signed and the holding deposit is paid. If they cannot obtain a visa (or do not come for some other reason), I retain the holding deposit and otherwise accept my loss. If tenancy proceeds they subtract the amount from their initial rent.

    These guys cannot get anyone else to offer them a tenancy. But I will not do so either if I am no longer permitted to protect myself.

    What is the current status and when is that changing?

    #2
    https://services.parliament.uk/bills...enantfees.html

    Committee stage at the House of Lords, you're good.
    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.

    I do not answer questions through private messages which should be posted publicly on the forum.

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      #3
      I keep hearing it’ll be 1st April 2019. Mr Hammond may well give us an update this week.

      Comment


        #4
        The Bill as introduced does not have provisions bringing the relevant bits of the legislation into force on royal assent, so assuming that haven't and isn't going to change, the Bill need to pass, and then secondary legislations would need to be introduced specifying a date. So a bit away yet.
        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.

        I do not answer questions through private messages which should be posted publicly on the forum.

        Comment


          #5
          What about a contract for a lease whereby you contract to grant them a lease upon them having the right to rent credentials, and the japanese therefore paying a sum of money for that contract. That way you are not letting to them just contracting to do so on them becming entitled to rent. Contracts for lease are used more extensively in commercial property

          Comment


            #6
            (Based on the original Bill)

            It would be a prohibited payment if a landlord requires a relevant person to make a payment, [or] enter into a contract ... in connection with a tenancy of housing in England if and only if the landlord— (a) requires the person to do any of those things in consideration of the
            grant, ... of such a tenancy

            So no (from my reading).
            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.

            I do not answer questions through private messages which should be posted publicly on the forum.

            Comment


              #7
              Depending on the wording it's not been impossible in Scotland, but not advisable
              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


                #8
                Originally posted by flyingfreehold View Post
                What about a contract for a lease whereby you contract to grant them a lease upon them having the right to rent credentials, and the japanese therefore paying a sum of money for that contract. That way you are not letting to them just contracting to do so on them becming entitled to rent. Contracts for lease are used more extensively in commercial property
                .
                Tenancy agreements are contracts for lease. A tenancy agreement can be conditional. The trouble is though that you will need an expert to draw up a conditional contract which provides for the deposit to be retained and that will probably cost you more than the deposit.

                Comment


                  #9
                  If a holding deposit has been taken, the legislation can't make it retrospectively wrong, the general prohibition against retrospective legislation would prevent that.

                  A holding deposit is implicitly an advance fee, so all holding deposits in existence at the time of any legislation would have to be allowed to transact as intended.

                  In this case, if the contract were to be signed in advance, and then frustrated, there would be a loss against which compensation could be claimed.
                  That's not to say that difficulty in enforcement wouldn't make that pointless.
                  The best solution is probably escrow rather than a deposit - funds paid into escrow that would be released should the appropriate situation arise.
                  Again, I don't have an obvious off the shelf solution (although google finds people who offer such a service).
                  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).

                  Comment


                    #10
                    Originally posted by jpkeates View Post
                    A holding deposit is implicitly an advance fee, so all holding deposits in existence at the time of any legislation would have to be allowed to transact as intended.
                    The problem is that it is rarely spelled out what the holding deposit is for. If you go into a shop and order goods and pay a deposit the understanding is that it is a payment on account. There is also perhaps a secondary understanding that if you are never seen again the retailer is entitled to keep the deposit. Whilst in practice that is what may happen, it is not quite what the law says, which is that damages for breach of contract may not exceed your loss.

                    Dealing with a landlord or letting agent, the position is not so clear. There are two possibilities. One is that what you have is really a lock-out agreement. That is an agreement by the landlord in return for cash that he will not deal with anyone else for an agreed period. The view of the now defunct OFT was that if that is the arrangement the prospective tenant needs to have had explained to him clearly that the agreement does not secure the property and that once the agreed period has expired the landlord is free to let the property elsewhere. Few prospective tenants would enter into such an agrement as it is worth very little.

                    The other is that the landlord or agent asks for a deposit and says that it will be applied to the first instalment of rent or whatever. Once the deposit is paid the question is: Is there are a contract? If there is not then the deposit has to be refundable because a deposit has to be hooked up to a contract. If there is a contract then the landlord has to grant the tenancy unless the contract is conditional and the conditons have not been fulfilled. If the contract is conditional and the conditons have not been fulfilled the deposit is refundable unless the contract provides otherwise. If the contract provides otherwise the prospective tenant needs to have had that made clear to him. If you want a conditional contract where the deposit is not refundable you need some expert drafting.

                    If you take a deposit and assert it is not refundable you run the risk of conceding that there is a contract.

                    Comment


                      #11
                      Originally posted by Lawcruncher View Post
                      The problem is that it is rarely spelled out what the holding deposit is for.
                      The proposed legislation does at least establish a framework for these deposits.

                      It's unlikely to work first time (like most legislation), but does provide some clarity.
                      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).

                      Comment

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