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

With a ban on letting agents and landlords charging fees to tenants in England now in force, our guest discusses what it could mean for the recovery of 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 ā€˜competeā€™ 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:

ā€“ Where a tenancy applicant ā€˜provides false or misleading informationā€™ that is material to the landlord or their agentā€™s decision to let out the property;

ā€“ Where an applicant fails a right-to-rent check; or

ā€“ 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 applicantā€™s deposit.

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

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

A: Yes, you are entitled to retain a tenantā€™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 ā€œstrong encouragementā€ 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 Actā€™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 applicantā€™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 weekā€™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 ā€“ 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 applicantā€™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?.

Comments

Sorry, I can’t comment on the specific scenario that you cite. However, I’m delighted that tenants will no longer be charged fees by letting agents.

It is landlords who choose that a specific property will be marketed and managed by a particular agent, and therefore the landlord should pay all of the fees levied by their chosen agent. The tenant does not choose that the property will be managed by a particular agent, and therefore should pay none of the agent’s fees.

Of course, the tenant will ultimately foot the bill for the fees through higher rents, but this legislation ensures that the advertised rent is the total price paid with no hidden extras, thereby avoiding a misleading indication of price.

I think, like NFH, that it’s about time!

There have already been a few reported cases of letting agents demanding that landlords increase rent to cover the loss or be charged an extra fee – but the difference between a landlord doing that to a tenant, and a letting agent doing it to a landlord, is that in the latter case the landlord can easily vote with their feet. I expect this may lead to a big upheaval and reform of letting agency behaviour – here’s hoping!

I had one particularly bad experience of a letting agent who charged me Ā£300 to essentially for me to give them my keys back so I am very, very happy to see this come into force.

Mind you I do vote with my feet with lettings agencies now after that experience. There are a couple I would not touch with a barge pole (however nice the place was).

My experience of “local” letting agents in London has unfortunately left me with a very bitter taste in my mouth, I believe the word unscrupulous sums up their overall behaviour!!!