Taking a deposit many months in advance of a tenancy.

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    Taking a deposit many months in advance of a tenancy.

    I let to students at a local University. Pretty much all first year undergrads are accommodated in University accommodation but are then required to move out for their second year. The "letting season" for next academic year (2020/21) starts about now and for undergrads will be pretty much over by early February. In the past, when I've signed up students at this time of year, they have signed the tenancy agreement, paid me a security deposit (which I then protect within the DPS within the required 30 days) and I give them the Prescribed Information document. The tenancy agreement makes it clear, that the Deposit is payable on signing the agreement. The Deposit is generally the equivalent of a month's rent and the DPS (which asks for the start date of the tenancy) has never not accepted such a Deposit.

    I've always felt that getting the tenants to pay something when they agree to take a property many months before they are going to live there brings home to them that they are actually committed to the agreement and that they may lose out financially if they subsequently change their minds.

    Last year, I used a letting agent and the process set out above was followed. This year, though, the agent has concerns about the impact of the Tenant Fees Act on this practice. I'm the only landlord on his books who lets to students, and following a discussion he has indicated he'll seek advice through the Guild of Property Professionals. I'd be interested on any views here. The agent's concern is that given the time between taking the Deposit and the start of the tenancy (might be 6 or even 9 months), might be treated as a payment which is not permitted under the Tenant Fees Act. I understand the agent's concerns as the penalties for breaching the act can be quite severe.

    #2
    I think what you are taking is a holding deposit which then becomes the tenancy deposit.
    I appreciate that you are protecting it and treating it as though it was a tenancy deposit, but I don't think it actually is one.

    I don't see how you can have a tenancy deposit so far in advance of the actual tenancy.
    Obviously, that's simply a view - it's not something I have any experience of.

    If it is a holding deposit, under the new regulations, you would have to agree in writing with the tenant(s) that the deposit was to be retained until the date it will be held until, as, otherwise, you can't hold the deposit for more than 15 days.

    And it's limited to one week's rent.
    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


      #3
      There are lots of tenants who need to know long in advance that there will have somewhere to stay and where that place will be. For school applications, peace of mind....

      However this is big government telling normal people that they cannot make decisions for themselves. As a landlord you should not offer them a tenancy. Explain who is to blame.

      I have tenants from China (postgraduate students) who need to know they will have somewhere to live before making the move and booking flights to bring their whole family across. Two weeks is not really very good, not is an unreasonably small holding deposit. Nor are vague laws that create a situation that is best simply avoided. These sorts of poorly considered political laws damage a lot of people.

      Comment


        #4
        Originally posted by jpkeates View Post
        I think what you are taking is a holding deposit which then becomes the tenancy deposit.
        I appreciate that you are protecting it and treating it as though it was a tenancy deposit, but I don't think it actually is one.

        I don't see how you can have a tenancy deposit so far in advance of the actual tenancy.
        Obviously, that's simply a view - it's not something I have any experience of.
        I don't think it is a holding deposit. It is taken after not before the tenancy agreement is signed, so it fails on timing the test of being a holding deposit (as set out in Schedule 1 of the act.) I think it does pass the test of being a tenancy deposit (also set out in Schedule 1). It is referenced as an obligation in the tenancy agreement, it falls under the 5-week's rent limit, Prescribed Information is given to the future (not prospective) tenant(s) and subsequently a copy of the providers confirmation is sent to the tenants.

        I'm not aware of any limits on how far in advance of commencement a tenancy can be granted or how far in advance a tenancy deposit can be taken under a tenancy agreement (but I wouldn't want to be a legal test case on this). However, I'm far from the only landlord signing up tenants this far in advance as a quick search of student accommodation in places such as Bath, Loughborough, Canterbury, Durham, Brighton, etc will doubtless reveal.

        Originally posted by AndrewDod View Post
        I have tenants from China (postgraduate students) who need to know they will have somewhere to live before making the move and booking flights to bring their whole family across. Two weeks is not really very good, not is an unreasonably small holding deposit. Nor are vague laws that create a situation that is best simply avoided. These sorts of poorly considered political laws damage a lot of people.
        I do know of landlords who will get the tenancy agreement signed whilst the student is still abroad. A number of platforms (eg StuRents) actually provide facilities for doing this.

        Comment


          #5
          Originally posted by modellingman View Post
          I don't think it is a holding deposit. .
          Fair enough, I'm still not sure I agree with you, but I have nothing that supports that view to present.
          Student letting isn't something I've been involved with since I was a student (and that was long ago!)

          What do you do if one of the joint tenants drops out?
          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


            #6
            Why do you need to sign the TA that far in advance? I used to take a holding deposit once the tenant was satisfied with the draft contract and present all the tenancy paperwork nearer the time. After all, a lot can happen in those few months, such as the tenant failing their exams... Do you really want to put them or yourself in breach of contract?

            Comment


              #7
              Hi i have a similar issue. In many parts of the country students seek and secure their properties almost 12 months in advance of stay.
              If a contract is signed for example in January 2020 and the tenancy begins in September 2020, surely a deposit can be taken in January 2020 too (as the contract would refer to it) and this be protected.

              Comment


                #8
                Originally posted by DPT57 View Post
                Why do you need to sign the TA that far in advance? I used to take a holding deposit once the tenant was satisfied with the draft contract and present all the tenancy paperwork nearer the time. After all, a lot can happen in those few months, such as the tenant failing their exams... Do you really want to put them or yourself in breach of contract?
                It is just the way this particular market operates. First year undergrads feel pressured (because they talk to 2nd and 3rd year undergrads) into finding accommodation for their second year only a few weeks after they've arrived at university for the first time. "All the best houses will be gone", etc. In years when there has been a surplus of accommodation (eg when the university opened two new colleges in same year adding 1000+ bedspaces) a few landlords who didn't advertise early enough ended up with no tenants (and no income!) for the following academic year. So its fear of missing out by both tenants and landlords that drives the timing of the cycle.

                The approach you used to use would now fall within the scope of the Tenant Fees Act. So you'd now be limited as to the size of the holding deposit that you could take and you'd have to get the prospective tenant to agree that you could retain it for more than 15 days. See schedule 2 of the act.

                It does very occasionally happen that tenants drop out/fail end of year exams/change their minds in the 6-9 months between signing the agreement and the start of the tenancy. But it is extremely rare, And when it does happen (twice I think in around 20 years on a portfolio of around half-a-dozen properties), tenants understand their obligations (because we make sure they do at the outset) and a solution is found. First time, the student's parents simply paid the rent each month for the 12 month fixed term. Second time, the prospective tenant found a replacement and old tenancy agreement was torn up and replaced with a new one.


                Theoretically, pretty much every landlord letting to students in England and Wales runs the risk that students won't have vacated a property at the end of the fixed term when, often on the following day, a new agreement with new tenants kicks in. But it has never happened to me and I have never heard of any other case where it has occurred. However, the change in Scotland in Dec 2017 which abolished fixed term tenancies did lead to some landlords delaying the recruitment of new tenants until much later in the cycle. Whether this has persisted, I'm not sure. I suspect not.

                Comment


                  #9
                  That's what the holding deposit, covered by a signed holding deposit agreement is for. You don't need to sign the AST that early (even in that market) and its not advisable. If in the intervening period you had a financial crisis and had to sell the property, you would be in breach of contract and potentially obliged to provide alternative accommodation.

                  Comment


                    #10
                    Originally posted by modellingman View Post
                    The approach you used to use would now fall within the scope of the Tenant Fees Act. So you'd now be limited as to the size of the holding deposit that you could take and you'd have to get the prospective tenant to agree that you could retain it for more than 15 days. See schedule 2 of the act.
                    As long as you agree to vary the 15 days in writing and confirm a new date, you can vary that deadline.
                    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


                      #11
                      A good place for advice on this is probably the Univesity Housing Office. They deal with lots of landlords and students. I can't remember what my student landlord calls it, but she does take money well in advance, so there must be a known mechanism.

                      Comment


                        #12
                        Originally posted by DPT57 View Post
                        That's what the holding deposit, covered by a signed holding deposit agreement is for. You don't need to sign the AST that early (even in that market) and its not advisable. If in the intervening period you had a financial crisis and had to sell the property, you would be in breach of contract and potentially obliged to provide alternative accommodation.
                        I understand the risks and can manage them (even if I died in the meantime). But FOMO (fear of missing out) is what drives the very widespread practice of signing the tenancy agreement early in the student letting market. Presumably, your signed holding deposit agreement would have to say something like "I will agree by date X to sign a tenancy agreement letting property Y to tenant Z but if anything happens in the meantime I will not be bound by this deposit holding agreement" if you are to avoid the risk you are suggesting I should avoid. Can't see that giving the prospective tenants the certainty they are looking for when they do sign an agreement with a landlord. I suspect also you'd have to give the prospective tenants a similar get out of jail free card to avoid the agreement falling foul of unfair contract terms.

                        Comment


                          #13
                          Originally posted by Stef Cooke View Post
                          A good place for advice on this is probably the Univesity Housing Office. They deal with lots of landlords and students. I can't remember what my student landlord calls it, but she does take money well in advance, so there must be a known mechanism.
                          Good suggestion. Thanks.

                          Comment


                            #14
                            As suggested, I contacted the accommodation office of the university. They no longer provide any services to private landlords but instead suggested that I contact the students union. The SU wouldn't respond to my question about what advice they provided to students in respect of deposits. Instead they simply responded (twice) saying that as I was not a student they couldn't provide me with any advice.

                            Personally, I think the question had simply not arisen for them and they didn't want to admit that they didn't have an answer. I went through their advice to students on their website (its Durham for anyone who is still interested) and whilst most of it is sound, there was nothing relevant to the issue I raised in my OP.

                            Comment


                              #15
                              Presumably (?) they just act as a tenant-find (and put in touch with you) service in exchange for a fee. They are not acting as agent for you and your arrangements will be your own. So they don't need to advise on that one way or the other. Doubt they are hiding anything.

                              Comment

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