How to complete a contract when the deposit has been stolen

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    How to complete a contract when the deposit has been stolen

    I am just about to remove my properties from my current letting agent. For the last year or so the rent has been received very erratically, and for the last three months now I haven't had any rent at all. There has been a lot of correspondence and communications over this period and I have been continually fobbed off, and constantly lied to about when I'm getting paid.

    Despite their threats to sue me (they want three months' notice to end our contract), I have decided to ask my tenants (I have 2), to no longer pay their rent to the agent, with immediate effect, and pay directly to me until I decide what I'm going to do.

    I have recently been advised that the agent has closed his shop (he's managing what little business he has left from his home) and left many landlords and tenants without their rents, and without their deposits, as these were almost certainly not protected.

    My question is this; Will I immediately have to give my tenants a new contract, and how do I deal with the deposit side of it? I'm aware that I will be responsible if the deposits don't materialise but I literally can't afford to put the deposits into a scheme just now - I haven't had rents for three months so I'm struggling financially.

    Can I leave the tenants without a contract until further down the line? Can I put 'nil' for the deposit, and amend the contract at a later date? Should I put the full deposit on the contract and then protect it when I am able to?

    As I'm typing this I'm aware that all three of the above options are fraught with difficulty. But what is the best option? I'm struggling to see any other possibility.

    My tenants are both on periodic contracts - they've both been with me a number of years.

    Any assistance would be much appreciated.

    #2
    Who was named as landlord on current contract? If you, no need to change it or offer new contract. If agent much bigger problems

    You are responsible for deposit, even if you never get it. Check (shelter show how) if it's protected.

    Probably best to offer a new AST, no deposit, lower rent to get them to sign. Make sure all paperwork perfect (GSC, EPC, how to rent, right to rent etc etc etc)
    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
      You cannot terminate the contract with the tenant without the full section 21 process.

      You cannot not have a contract with the tenant, even if there is nothing on paper Verbal contacts are unwise.

      As already noted, you are liable for any failure to protect the deposit. In the worst case you may have lost four times the deposit (the actual deposit and a 3 times penalty for failing to protect it).

      You should immediately put a Companies House monitor (beta.companieshouse.gov.uk) on the agent, if they are a company or LLP, and should register as a creditor, if they should even attempt to wind up the company.

      Comment


        #4
        Thank you theartfullodger , that seems a little encouraging - I am named as the landlord, c/o of the Agent's address. There is a clause later that says 'The Deposit will be paid to the Agent for the Landlord'. Does this make a difference? The contract also explains the Landlord's Agent; 'The Landlord's Agent shall mean ************* Lettings or such other agents as the Landlord may from time to time appoint'. I hadn't processed that statement before but I guess it means that the current contract will be valid where-ever I go.

        If I protect the deposit at a later stage does that rescue the situation of possibly having to pay the penalty for non-protection?

        leaseholder64 My concern about issuing a new contract with no deposit is how the tenants will react. They are both very good tenants and always have been and I don't really expect them to pursue action, but it's best to be on the safe side. I'm sure they won't be pleased to know that their deposits are unprotected.

        The company is still active at Companies House and I will be monitoring them - thank you for that advice.

        Oh (sorry) one more question. I think that if the deposits aren't protected I should go to the police, but is it me that should do that, or the tenants?

        Comment


          #5
          You are still liable for a penalty; the offence is failing to protect within 30 days. You will not be able to use section 21 without returning the deposit. If you are lucky, you might get the penalty reduced to two times, if the return doesn't seem to be preparation for section 21, but there are no rules (1 times penalties tend to be used when the deposit was protected, but the paperwork wasn't issued.

          Comment


            #6
            First of all, talk to the tenants and ask them for some evidence to use against the agent that they have paid the rent to the agent in the first place.
            Asuming that they have, I would tell the tenants that the agent hasn't been passing the rent on, and ask them to pay the rent directly to you.
            You're the landlord and are perfectly entitled to do that.

            I would suggest a new tenancy agreement starting now, with a new six month fixed term, with no mention of the agent.
            That would replace the current tenancy agreement automatically.

            The tenancy agreement should mention the deposit and you are responsible for looking after it and returning it.
            If you don't have the funds available right now, use a deposit protection company's insured scheme, which costs much less than the deposit amount and use the next few month's rent to build up the deposit.

            The agent will threaten to sue, because your contract with them will have some kind of termination provision.
            But they're really hard to enforce - because they're almost always seen as penalty fees, particularly if there's no work for the agent to do (so they can't clam its an admin fee).

            The deposit is the tenant's money, but you are responsible for it, so you would be able to sue the solicitor for its return (so would the tenant, but that's not going to help landlord/tenant relationships).

            Nothing can help avoid the penalty if the deposit wasn't protected.
            Acting sensibly can minimise the penalty, and a happy tenant who got their deposit back fairly is less likely to sue you.
            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


              #7
              I think you can dispense with the LA in 1 month, for Breach of Contract (not forwarding rent, when received in Contractual time scale or not keeping you informed if no rent received).
              Set up DPS account and get LA to transfer the deposit to it, so there is no break in deposit protection, (assuming LA did protect it within 30 days of receipt).
              Act Now.

              Comment


                #8
                There are a lot of I think and assumptions here. The first order of business is find out the exact situation you're in. Actually check if the deposit was protected or not.

                Assuming that it wasn't. When was the deposit taken? Was there a fixed term that has ended and rolled onto statutory periodic, if so when? Was there any fixed term "renewal" or "extension", again if so when?

                Speaking of deposit penalty, the landlord is possibly actually better off if the tenant find out and sue now rather than later assuming limitation doesn't come into play. The agent still exist, so the tenant may sue the agent instead of the landlord, or the landlord can sue in turn or try to join the agent as defendant. Also the remedy under s214 for a court order for the deposit to be returned (or protected in a custodial scheme if tenancy is ongoing) is made against the person "who appears to the court to be holding the deposit" which would be the agent here. Whereas if the tenant is suing for the return of the deposit as a simple debt after the tenancy ended, would undoubtedly be against the landlord, and if the landlord can't pay within 14 days, hello CCJ.
                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


                  #9
                  I have learned today that the Letting Agent has, over this Easter break, cleared his shop and closed it. The deposits have never been protected. And the Agent is moving home in the very near future to another part of the country. Presumably to escape his creditors; I know I'm not the only landlord of his in this position. His company is still 'Active' on the Companies Register.

                  I'm leaning towards not re-issuing a new contract, but writing to the tenants to change the address for service of notices, to my home. Then place the deposits in a scheme as soon as I am able. My logic is that providing my tenants don't move out before then, they will be none the wiser. Even though I don't think my tenants will take action against me if they get their deposits back at the end of their tenancies, I really don't want to invite the possibility if I don't have to.

                  Does this sound feasible?

                  Comment


                    #10
                    You lose the ability to use section 21, as you cannot do that without returning the unprotected deposit.

                    Comment


                      #11
                      Originally posted by Gilmore View Post
                      Does this sound feasible?
                      If you want helpful answers, you have to provide some yourself first.

                      Like
                      When was the deposit taken? Was there a fixed term that has ended and rolled onto statutory periodic, if so when? Was there any fixed term "renewal" or "extension", again if so when?
                      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


                        #12
                        The deposits were taken in March 2012 and May 2014 respectively. Both tenants had 6 months terms then both have rolled them
                        onto monthly periodic. No renewals, no extensions.

                        Comment


                          #13
                          Well, the March 2012 fixed term, April 2012 (historic legal issue, don't ask), and September 2012 SPT are all beyond limitation, so you can protect the deposit in an insurance scheme to avoid getting sued, and return the deposit first if you want to serve s21.

                          You have problems with the May 2014 fixed term, and November 2014 SPT. That's two penalties of 1x-3x that you are liable for, plus the deposit itself.

                          The company may still be active, but if it files for dissolution tomorrow, you can only halt that if you intend and actually do bring a court claim against it. Not a lot of point to that if it was no asset unless you can get the court to decide that the director be made personally liable for the company's debt. And not a lot of point to that unless you know the human has asset to pay up in such a case. Not even sure you can bring a claim against them for a potential loss (i.e. your tenant can sue you in the future but haven't yet).

                          An hour paid for advice from a knowledgable solicitor may not be a bad idea here.
                          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


                            #14
                            Issue LA with an MCoL NOW for rent & deposit outstanding, repay T their deposit, with T-signed receipt so you can serve s21 in future, but you, as LL, remain liable for any Penalty imposed.

                            Comment


                              #15
                              Thank you everyone, there's an awful lot to digest. What a complicated business this is......

                              Comment

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