Landlord looking for advice on holding deposits

[111]

Hi. I am a landlord looking for some advice please.

1. AAA were acting as my agent and were holding £370 deposit from a prospective lodger. AAA were also acting as my agent in respective of my previous tenant at that time. In late July 2011 they introduced a new prospective lodger to me. AAA advised me that the prospective lodger wanted to move in ASAP and I gave notice to my existing lodger for him to move out on the 12th of August 2011.

2. The prospective lodger then deposited two weeks of rent to hold my property which AAA held as my agent while AAA obtained references on my behalf. The prospective tenant was supposed to have satisfied all references by 4th August 2011 and moved in on the evening of the 12th August 2011.

3. However the lodger subsequently backed out of the transaction and refused to cooperate in obtaining all the references and documents which I required before letting him my property. Instead of turning over the holding deposit to me, AAA returned the money to the prospective lodger. I had turned away other prospective lodgers during this period and was left with a void period.

4. AAA claim that the deposit was to be returned back if I as landlord refused his tenancy for any reason.

5. I am of the opinion that:
a. The form also states that “in the event you (the tenant) shall change your mind on any condition of the offer then the Holding Deposit will not be refunded. Providing all references by the 4th of August 2009 was a condition of the offer. Also all required references were flagged well in advance as can be seen from the correspondence shared with you. I made reasonable accommodation in respect of extensions sought by the prospective tenant. It was only when I spoke with AAA on the 7th of August that it was made clear that further information wouldn’t be forthcoming.
b. As a matter of common law, a party to a contract may not benefit from its own breach of that contract. My lodger (who was going to occupy a room in the same house where my wife and children lived) was informed that he needed to provide references in order for the licence to proceed. This was an important condition precedent. Non compliance of this important condition precedent could have meant that I may be letting a criminal into my house! It would be against natural justice for him not to cooperate in providing references and then use this as an excuse to say that I withdrew from the agreement. I was not prepared to relax this important condition to protect my family and sanity.

6. Please can I get some advice if I am indeed entitled to ask for this deposit or are the estate agents correct?

[mariner]

111, please confirm you are living with your wife in the same property as the 'lodger'

[111]

111, please confirm you are living with your wife in the same property as the 'lodger'

Dear Mariner. While I don't see the relevance of your question, the answer is that yes my family lives in the same house. This is why it is a lodger. Look forward to your response to my original post.

[Snorkerz]

Dear Mariner. While I don't see the relevance of your question, the answer is that yes my family lives in the same house. This is why it is a lodger. Look forward to your response to my original post.Mariner felt the need to clarify that you knew the difference between lodger and tenant, as it is not usual for lodgers to be found through agencies. Your response was somewhat curt and not likely to engender much in the way of helpful response.

Your agent was correct - this thread may throw some more light on the situation.
http://www.landlordzone.co.uk/forums/showthread.php?13840-Deposits-not-held-for-security&highlight=deposits

[Lawcruncher]

In summary:

1. The purpose of a deposit is to secure the performance of a contract.

2. If there is no contract any sum paid as a "deposit" is refundable.

3. For there to be a contract it takes two to tango - both parties must agree to do something. What did you agree to do?

[111]

Dear Mariner and Snorkez,

I didn't want to sound curt but was genuinely perplexed by Mariner's question. Please forgive me if my response appeared curt it was not intended to be curt. I have gone through the helpful thread and still had some questions which I will address in the next post.

[111]

Dear Lawcrucher,

Thank you for your time and advice. This is what the holding deposit form stated:

"Please sign this form and deposit money only if you are certain you want to take the property.If once the Landlord accepts your offer the property will come of the market and be reserved for you. In the event that you should change your mind or any condition of your offer the Holding deposit form shall not be refunded. The Landlord has accepted the Holding Deposit subject to the approval of all references. If the Landlord for any reason decides not to sign the tenancy agreement with you, your Holding Deposit will be refunded in full. No further compensation of any kind will be paid or considered."

So to your question of what I was prepared to do, I was taking my property of the market, turning down other offers and reserving it for the tenant (subject of course to references).

What indeed is the purpose of the holding deposit if not for indemnifying me of my losses? What is the stick for the tenant if for example he / she simply refuses to play ball completely i.e. not provide any references at all, vanish and be uncontactable Under this scenario after some time I will logically let the lodgings to someone else (and thereby mitigate my losses). The 1st tenant can then simply turn up and say that he is now prepared to enter into an agreement. I would then be in an impossible situation and according to this scenario have to return the 1st tenant's holding deposit and not use it to indemnify my losses given that I have had to finding a tenant afresh.

[Snorkerz]

IMHO you have not promised to do anything - you had the option to turn your back on the agreement if you weren't happy with the references. By the same reasoning, why do you think the prospective lodger should not have the option to turn his back on the arrangement if he was not happy with something?

However, iirc (and it's a while since I read the thread I linked to) the inclusion of the words 'shall not be refunded' may have some bearing - I shall leave it for the expert to comment further . . . Lawcruncher ?

[111]

Dear Snorkerz - thank you. My two cents - the two situations can't be the same. Most landlords will only give their house to the tenant after referencing and rightly should have the option to back out if anything untoward is discovered during this process. During this period they rightly will pull their house of the market to show earnestness or risk bad blood with their estate agents. The tenant on the other hand has had the full opportunity to inspect the house and clarify any conditions in advance. Else is this holding deposit business just an eyewash?

[Snorkerz]

Dear Snorkerz - thank you. My two cents - the two situations can't be the same. Most landlords will only give their house to the tenant after referencing and rightly should have the option to back out if anything untoward is discovered during this process. During this period they rightly will pull their house of the market to show earnestness or risk bad blood with their estate agents. The tenant on the other hand has had the full opportunity to inspect the house and clarify any conditions in advance. Else is this holding deposit business just an eyewash?Your two cents may not correlate with the law ;(

[Lawcruncher]

Renting, whether land or anything else, involves the undeniable fact that you cannot recover any lost days. Until fairly recently, landlords accepted this, but with the increase in BTL and the number of letting agents the practice of extracting cash as early as possible from prospective tenants has arisen. The practice has become semi-acceptable because few people understand the true purpose of a deposit. Despite widespread, if albeit reluctant, acceptance the law has not changed.

So, how can a landlord extract a "non-refundable deposit"? The answers is: "With difficulty". Leaving aside sophisticated arrangements wholly unsuitable for short term residential tenancies, there are two possibilities:

1. A "lock out" agreement. This is where the landlord agrees, in exchange for a consideration, that during a fixed period he will not negotiate with any other prospective tenants. They are of little use to a tenant because he is not guaranteed that he will get the property and in any event cannot be adequately policed. If a landlord gets a better offer all he has to do is wait until the agreed period comes to an end. I have in the back of my mind that the OFT does not like this sort of arrangement.

2. A conditional contract. This where is where the parties agree there will be a letting, but completion of the agreement is subject to the condition precedent that the tenant provides satisfactory references. The agreement provides for the tenant to pay a non-refundable deposit. The basic idea is fine, but to get it right you need some good drafting. However good the drafting though the court has the discretion under section 49(2) of the Law of Property Act 1925 to order the repayment of a deposit.

111's "holding deposit form" is neither one thing not the other and is too vague to constitute a valid contract. Indeed the words: "If once the Landlord accepts your offer" are a clear indication that no contract has been concluded.

The best a landlord can hope for (apart from hoping a prospective tenant does not know the law) is to treat the payment of a holding deposit as nothing more than an indication that the prospective tenant is not a timewaster.

[Snorkerz]

Thanks LC LC LC

[111]

Srnokerz and Lawcruncher - thank you for your advice and time. I am much obligated