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Has your landlord held you to ransom with your holding deposit?

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rental agreement
Profile photo of Samuel Beswick Samuel Beswick Lawyer
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Some letting agents and landlords are using holding deposits against potential tenants to secure higher rents. So how can you push back? Our guest, Sam Beswick, successfully claimed for a breach of contract…

Like many other renters, when I moved to London I agreed to pay a holding deposit (of £500) to an agent to secure a flat I had viewed.

Before I paid, we set down in a one-page document the basic terms – the amount of rent and fees, the length of the tenancy, and the move-in date, which the agent relayed to the landlord.

Days later, I discovered that the property was still listed as available and that the landlord was considering a higher rental offer from another prospective tenant. I was told I would either have to match the higher rent, or walk away from the tenancy.

No bargaining power?

Walking away wasn’t an option: I had already set the move-out date with my previous landlord, I had turned down another flat, and my future flatmates (my brother and his wife) were on a plane from Australia expecting to move into our new home when they landed.

Despite my protests, neither the landlord nor the agent saw the holding deposit agreement as legally binding.

In the end, after passing reference and credit checks, I was presented with a redrafted tenancy agreement. This rewrote all of the terms that had originally been agreed and, to my mind, only benefitted the landlord. I signed, reluctantly, reiterating my protest, and we moved in.

Holding deposit agreements are contracts

I struggled to find any firm guidance on the legal effect of paying a holding deposit. Being an academic lawyer, I did my own research and published an article on the pre-tenancy obligations and rights of parties to holding deposit agreements.

Unsurprisingly, the landlord wasn’t interested in my article or my claim that imposing higher rent and extra fees had been in breach of contract.

That is, until we moved out when I filed a breach-of-contract claim in the County Court. Rather than contest the case, the landlord admitted it and paid my claim immediately. My siblings and I received a full refund of our over-charged rent and fees (with interest).

See you in court?

Each case will turn on its particular circumstances. Whether the payment of a holding deposit creates a binding contract depends on what was agreed (either verbally or in writing) when it was paid.

I felt I had a strong case since we had a written record of our holding deposit agreement, I always disputed the landlord’s attempts to ‘renegotiate’ the tenancy terms, and I kept a record of conversations (emails, texts, etc) with the landlord and agent from the start.

As a lawyer, the prospect of going to court was more familiar to me than most. But even for a lay person, the process may be less daunting than it seems, with useful guidance on the government’s site.

This is a guest post by Sam Beswick. All views are Sam’s own and not necessarily those also shared by Which?.

Has your landlord or their agent used a holding deposit as leverage against you? Did you walk away from the tenancy, or did you end up going through with it and paying higher rent? Have you looked into your rights? Have you ever thought to sue over a breached holding deposit agreement? Or do you know someone else who this has happened to?

Comments
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wavechange says:
10 June 2018

In his introduction, Samuel reports that he recovered his money by making a court claim and rightly points out that this could be daunting for those with no legal experience. It seems likely that others will struggle to have their money refunded or may not achieve this.

Perhaps if a landlord or agent takes a holding deposit and forgets to take the property off the market that could be a genuine mistake but if it happens more than once then there is at best incompetence and at worst deliberate deception. How can the owners of these companies be removed from office before others suffer the consequences of their actions?

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malcolm r says:
10 June 2018

Holding deposits occur in a number of areas. My two sons had to buy replacement cars recently – used – from main dealers. One car was 200 miles away; the dealer would move the car locally to be viewed and the dealer required a holding deposit. Nothing binding on either party at that stage, but a sign of good faith. The other could not be viewed for a week, so again a deposit was paid to keep it from being sold in the meantime. In both cases anyone else could show interest in the cars and make a higher offer. The dealers had no guarantees the boys would buy the cars so the deposits were a sign of good faith.

Presumably the same applies to property. The landlord/agent has no assurance that the prospective tenant is suitable or financially able to meet the rent until checks have been made. The property is theirs to do with as they wish until these are satisfactorily completed. So it seems unwise to make moving-in arrangements until the tenancy is secure.

Should the property continue to be advertised? Well, I probably would to have a fall-back if the first prospective tenant proved unsuitable. However, I would suggest that the deposit receipt should be framed as a legally-binding agreement such that if all checks were passed the tenancy would be arranged on the agreed terms. But the deposit would be lost if the prospective tenant changed their minds.

No one should have to go to court if the legal position is clear from the outset. For example, the requirements of the Consumer Rights Act are in many instances quite clear if only both parties were made aware of them; something I’d like to see Which? promote.

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wavechange says:
10 June 2018

About six years ago I visited a main dealer, obtained a quotation for a new car and then looked at what other dealers in the region would offer on the same car or something similar. One had a new but pre-registered car at a very good price and I paid a £200 holding deposit. I had to go out and when I got home there were a collection of very apologetic messages and a couple of emails. ‘My’ car had been sold by another branch of the company. I was refunded very promptly. Mistakes do happen.

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Beryl says:
10 June 2018

This is yet another classic example of the lack of legally binding contracts in the UK housing rental and sales procedures at initial interest stages.

In any event I would have thought a lawyer should possess the temerity to insist a property is taken off the market and include a clause to this effect in any contract that involves exchange of monetary deposits, whether it be rented or purchased.

If acting agents were given the authority to draw up a legally binding contract at the same time as a deposit is handed over it would stop any potential skulduggery by prospective landlords who are out to make a quick exploitative buck from an unsuspecting client.

This would presumably prevent any mistakes by either party involved in the process, subject of course to the usual checks being carried out, also included in any contractual terminology.

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Rent Rebel says:
31 July 2018

It’s interesting that Mr Beswick raised his money claim only when the tenancy was over. Because (for reasons I entirely understand) it just wasn’t practical to do so at another time. But I have :

a) never got the T&Cs of a holding deposit in writing, ever
b) never got a draft tenancy agreement to read and approve. (despite expressly asking agents to provide). Money first, tenancy agreement later.

Mr Beswick was very lucky to get them both and have a dispute to even raise / claim to make (albeit, it didn’t get to court). Very pleased the landlord capitulated so quickly. Private renting really is the wild west of housing tenures. I must echo what wavechange writes above:

“Perhaps if a landlord or agent takes a holding deposit and forgets to take the property off the market that could be a genuine mistake but if it happens more than once then there is at best incompetence and at worst deliberate deception. How can the owners of these companies be removed from office before others suffer the consequences of their actions?”

Court is actually the last thing that tenants want. Criminal agents need swiftly shutting down and putting out of business. And change the law to let tenants legally withhold their rent, for the duration of the tenancy term, in the event that such a breach of contract has occurred. That’s what giving the power back looks like.

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