Tenant fees ban: what does it mean for holding deposits?

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

Having experienced the anxiety of being made to ‘compete’ for a flat after paying a holding deposit, I was pleased Parliament has now abolished tenant fees and improved regulation of holding deposits.

Under the Tenant Fees Act, landlords and letting agents may cancel holding deposit agreements in only three circumstances:

– Where a tenancy applicant ‘provides false or misleading information’ that is material to the landlord or their agent’s decision to let out the property;

– Where an applicant fails a right-to-rent check; or

– Where an applicant backs out of the agreement

This is sensible. But I think cases of valid cancellation will arise where tenancy applicants should still get at least some of their deposit back.

Are holding deposits automatically forfeitable?

Government guidance on the Tenant Fees Act problematically suggests that in these three circumstances a landlord or agent need not refund any of the applicant’s deposit.

When discussing tenancy applicants who withdraw from a property, the guidance states:

Q: Can I retain a tenant’s holding deposit if they withdraw from a property before I have incurred any costs?

A: Yes, you are entitled to retain a tenant’s holding deposit in this situation but must explain to the tenant why you are doing so. However, if a tenant pulls out of a proposed agreement before you have incurred any demonstrable costs, such as, costs for referencing checks or you are yet to take the property off the market, we would strongly encourage you to refund their holding deposit

Despite the “strong encouragement” in favour of refunding, landlords and agents could invoke this statement to justify treating holding deposits as automatically forfeitable.

Such an approach may run afoul of the Consumer Rights Act’s prohibition on unfair contract terms, which also governs tenancy agreements. Deposits should not penalise applicants for cancelling.

Costs incurred

I think landlords or agents who keep deposits without taking into account the applicant’s reason for cancelling or the costs they have incurred may fall foul of CMA Guidance.

Landlords and agents should retain so much of the holding deposit as represents their losses that the applicant caused.

Since the Act caps holding deposits at one week’s rent, in many cases this may well represent the full loss incurred.

But where, for instance, a landlord or agent quickly finds a new tenant without further cost, consumer protection laws may require that they refund the difference back to the cancelled applicant to avoid being over-compensated – even if this is not mandated by the Tenant Fees Act itself.

I’d like to know, have you ever had to cancel after paying over a holding deposit? Do you think a tenancy applicant’s reason for backing out should affect who keeps the deposit?

Should landlords keep holding deposits regardless of whether or not they have incurred any costs?

This was a guest post by Samuel Beswick. All views expressed were Samuel’s own and not necessarily shared by Which?.