Abortive letting: can L keep any of preliminary deposit?

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  • Mrs Jones
    replied
    I think the deposit taken was not declared clearly to the prospective tenant that it was a "holding deposit" which, in the event of the tenancy not being taken up by the tenant or because of the prospective tenant failing credit and referencing checks, would be forfeit, but on the taking up of the AST would be used as the tenants deposit (or part thereof) and protected accordingly.

    I believe you have to give the whole of this money back.

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  • quarterday
    replied
    Is holding deposit refundable to tenant if they change their mind

    Generally it is properly refundable as it is a "subject to contract" deposit.

    However if you were to draw up on a bit of paper a set of conditions specifying that the deposit is non refundable (unless the landlord will not proceed on the basis of the references being unsatisfactory) then there could be grounds for the deposit to be non refundable and treated as liquidated damages in consideration for holding the property off the market. Even then, I think would have to get the tenant to read and understand the terms on which the deposit has been tendered and sign such terms and conditions.

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  • TenantsLuvMe
    replied
    Originally posted by jeffrey View Post
    The problem is simply how T becomes liable for a debt which is clearly L's: L instructs A. However, there's no prohibition on L imposing a condition that T must indemnify L against A's costs- which, of the options, is far better than trying to make T personally liable to L's agent.
    There doesn't appear to be an agent involved.

    Leave a comment:


  • Lawcruncher
    replied
    Originally posted by westminster View Post
    But how would OP comply with s.2(1)(g)(vi) of the prescribed information order, obliging the LL to inform the T of : "the circumstances when all or part of the deposit may be retained by the landlord, by reference to the terms of the tenancy"? Arguably, one could not refer to the terms of a theoretical agreement which neither party had entered into.
    If the terms do not exist until the tenancy is entered into how can you know what they are before you entered into it? The terms must exist before the tenancy does, which means that reference can be made to them.

    Originally posted by westminster View Post
    from the FAQ on the TDS website:

    So if the tenancy agreement has not been entered into, and there are no contractual obligations resting on the tenant, the deposit paid is not a deposit for the purposes of the Act.
    I do not see how this can be correct.

    Look again at the wording of the Act:

    Any tenancy deposit paid to a person in connection with a shorthold tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme.

    If the deposit is paid in advance it is still paid "in connection with a shorthold tenancy".

    Further, if the argument that the deposit is not received until there is a tenancy is correct, in a situation where the tenant signs a few months in advance (as often happens with student tenancies) the deposit would not be deemed to be received until the tenant goes into occupation since there certainly cannot be an assured tenancy, and therefore no assured shorthold tenancy, where the tenant is not living in the property. This surely cannot be what the Act intended.

    Having regard to the mischief that the Act is designed to prevent, I need some persuasion that money paid to secure the tenant's obligations does not need to be treated as received when it is actually received.

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  • dominic
    replied
    I assume the deposit was taken as security for T's obligations under the prospective AST which was going to be signed?

    If so, you cannot keep the money, it was not therefore provided as a "holding deposit" (which would have formed a contract collateral to the AST), unless you have agreed it was held as such until "converted" to a security deposit on signing the AST. Perhaps this is how LL's should protect themselves.

    Jeffrey is right. If/as there is no contractual relationship between LL and prospective T, then how can T be held liable for LL's loss, other than in an action for tort, which seems unlikely.

    As LL, it is your responsibility to protect yourself in this situation. Your lack of prudence should not be the T's responsibility.

    Leave a comment:


  • jeffrey
    replied
    Originally posted by TenantsLuvMe View Post
    I can see both sides of the argument (curious to read what Jeffrey says if he answers) but on balance, I feel that the cost to a landlord is high when a soon-to-be-tenant changes their mind at the last minute and so there must be some counter balance to this iniquitous position, so that the mind of the tenant is properly focused on whether they really do want to take a tenancy at X property with Y landlord.
    The problem is simply how T becomes liable for a debt which is clearly L's: L instructs A. However, there's no prohibition on L imposing a condition that T must indemnify L against A's costs- which, of the options, is far better than trying to make T personally liable to L's agent.

    Leave a comment:


  • nuada
    replied
    Originally posted by TenantsLuvMe View Post

    After that experience, I developed a policy which I provided to all potential tenants, in writing and in advance, and which detailed what amount of money was required and for what, when it was to be paid and in what circumstances would any money be refunded, not refunded and what amounts.
    I think this is good advice and something I will introduce from now on, to be provided to the person paying a deposit along with their receipt.

    Leave a comment:


  • TenantsLuvMe
    replied
    Originally posted by nuada View Post
    Hi - I would be grateful for some advice.

    Last week I agreed a letting of a room in a shared house under an AST Agreement (AST for room only). The tenant paid me the deposit which is equivalent to one month's rent. I explained this would be protected once he had moved in. He was due to to move in yesterday but did not attend the check-in appointment and now states he has changed his mind.

    Would I be entitled to keep some of the money paid on the basis that we had an agreement (AST not signed although he had been sent a copy) and I have lost a week's marketing as well as rent?

    Or, as nothing was signed, should I refund the entire deposit paid?

    Thanks.
    I had this same situation a long time ago and I never kept any of the money because I didn't know what the right thing to do was and this happened before there were defined rules about such situations.
    I put it all down to experience.

    After that experience, I developed a policy which I provided to all potential tenants, in writing and in advance, and which detailed what amount of money was required and for what, when it was to be paid and in what circumstances would any money be refunded, not refunded and what amounts.

    I can see both sides of the argument (curious to read what Jeffrey says if he answers) but on balance, I feel that the cost to a landlord is high when a soon-to-be-tenant changes their mind at the last minute and so there must be some counter balance to this iniquitous position, so that the mind of the tenant is properly focused on whether they really do want to take a tenancy at X property with Y landlord.

    My policy on money paid in advance has made a big difference to my experiences with potential tenants, not least of which is a big reduction with those people who are not ready to commit (which has saved a ton of time and money) and now there is no doubt as to what will happen & when if an applicant expresses an interest in taking my accommodation.

    Leave a comment:


  • westminster
    replied
    Originally posted by Lawcruncher View Post
    I think the wording of section 213 (1) of the Housing Act 2004 may provide to the contrary:

    Any tenancy deposit paid to a person in connection with a shorthold tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme

    If the deposit was paid to secure the performance by the tenant of his obligations under a shorthold tenancy it is a "tenancy deposit". Any such deposit is subject to the requirements of the Act and needs to be protected.
    But how would OP comply with s.2(1)(g)(vi) of the prescribed information order, obliging the LL to inform the T of : "the circumstances when all or part of the deposit may be retained by the landlord, by reference to the terms of the tenancy"? Arguably, one could not refer to the terms of a theoretical agreement which neither party had entered into.

    And from the FAQ on the TDS website:

    A holding deposit (i.e. where there are no contractual obligations on the landlord, under the terms of the Act) was taken for an assured shorthold tenancy. Will the holding deposit need to be protected under a Government-authorised scheme?

    No. A holding deposit is not a tenancy deposit for the purposes of section 212 of the Act [presumably s.212(8)] and will not be required to be held under an authorised Scheme. A deposit is only required to be placed in a scheme if it is money held (by a landlord or otherwise, e.g. an agent on his behalf) which is paid as security for the performance of any obligations of the tenant of this discharge of any liability, arising under or in connection with the tenancy. So if the tenancy agreement has not been entered into, and there are no contractual obligations resting on the tenant, the deposit paid is not a deposit for the purposes of the Act.

    Leave a comment:


  • Lawcruncher
    replied
    Originally posted by westminster View Post
    No. Deposit protection only applies to Assured Shorthold tenancies. No AST, no deposit protection required.
    I think the wording of section 213 (1) of the Housing Act 2004 may provide to the contrary:

    Any tenancy deposit paid to a person in connection with a shorthold tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme

    If the deposit was paid to secure the performance by the tenant of his obligations under a shorthold tenancy it is a "tenancy deposit". Any such deposit is subject to the requirements of the Act and needs to be protected.

    Leave a comment:


  • westminster
    replied
    Originally posted by nuada View Post
    Is there any argument that I have to register the deposit, since the tenancy never commenced?
    No. Deposit protection only applies to Assured Shorthold tenancies. No AST, no deposit protection required.

    Leave a comment:


  • Jaybee542
    replied
    Originally posted by Krispy View Post
    You had no gaurantee that your tenants would move out in 4 weeks time how much non refundable deposit would you be offering your tenant to be?
    None. Theres a difference between not being able to complete for no fault of your own and simply changing your mind once you have sat on an agreement for 4 weeks. The agreement I made with the tenants was always subject to the existing tenants moving out first - they knew that. I, on the other hand, had no way of knowing that they would simply be flakely and change their minds.

    Leave a comment:


  • nuada
    replied
    Originally posted by ohdearme View Post
    Hello
    I thought that you must register the deposit within fourteen days of getting it, nothing to do with whether the tenant has moved in.

    If you have had it for more than fourteen days and not registered it, you may not have complied.

    Alan
    Is there any argument that I have to register the deposit, since the tenancy never commenced?

    Leave a comment:


  • Krispy
    replied
    Originally posted by Jaybee542 View Post
    I had a situation where a tenant told me that he would take up the tenancy when the existing tenants moved out in 4 weeks time. Three days before he was due to move in, he changed his mind. It then took me another 2 weeks to get in new tenants. His decision cost me 6 weeks and about £500 If he had been compelled to provide a non refundable deposit, he may have thought twice about wasting my time and money.
    You had no gaurantee that your tenants would move out in 4 weeks time how much non refundable deposit would you be offering your tenant to be?

    Leave a comment:


  • ohdearme
    replied
    Check if you have Complied with the Law

    Hello
    I thought that you must register the deposit within fourteen days of getting it, nothing to do with whether the tenant has moved in.

    If you have had it for more than fourteen days and not registered it, you may not have complied.

    Alan

    Leave a comment:

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