Obtaining Deposit from Letting Agent

[Charlie]

We have two properties both which are on a fully managed service via a letting agent who is also an Estate Agent.

Several month ago, we started to expereince problems receiving the rent from the letting agent. He had recently opened a new estate agent shop and we suspeceted he was using rents and deposits from the letting agent to keep him afloat in the new business.

We managed to obtain all of our rent monies due, and they agreed to move the direct debits to our account so we would receive rents and pay the agent the commission for managing the lets.

Then the Lettings Manager resigned to set up a business of her own, working out of another Estate Agent. We then received notification that her existing company were were prepared for her to take the letting protfolio with her.

We agreed to this. However we have now been advised that the Letting Manager has been unsuccessful in obtaining the deposits from the original company. I have a tenant who has given notice, and the agent is saying that I will be liable for paying that tenant their deposit money even though it has never been in my possession.

I appreciate that this is not the tenants fault, but can I be held legally responsible for this money?

[Paul_f]

Yes I belive you can! I've previously thought that this isn't the case but I've now read from an authoritative solicitor on the subject that as an agent acts as "agent for the landlord", in practice you could be responsible for the tenant's deposit, and you might have to cough up.

On the other hand you can sue the previous agent for the return of the deposit monies, if he has any left that is! Don't let him get away with it!

If he is a member of ARLA/NAEA/RICS then your money is protected by insurance, and he can be held to account by their disciplinary procedures and fined, even if he were to resign. This should tell you not to even consider using an agent who is not a member of one of these organisations, otherwise you will have little protection. I keep saying this but few take notice unfortunately! Let's face it you don't want the same thing to happen twice do you?

[mjpl]

The previous post may not apply to your situation. As Paul points out, the letting agent acts on your nehalf and therefore is only a mediator between you and your tenant.

However, many agents hold a deposit as stakeholder. In this instance the agent has become responsible for the manner in which the deposit is held and is not obliged to refund it to either party without mutual consent.

As Stakeholder their is an obligation and duty placed on the agent that may protect you in this matter.

[Paul_f]

Even if the deposit is held as stakeholder this doesn't absolve the agent from taking care of the money as it still belongs to the tenant, and he is still acting on behalf of the landlord. There is absolutely no legal entity between agent and tenant, only agent and landlord so the landlord is still likely to be responsible for it's repayment if the agent has absconded.

mjpl is confusing the status of the deposit concerning a dilapidations dispute, which is not the case here, so he/she is incorrect I'm afraid.

[mjpl]

I see your point Paul but my post has perhaps been a little misleading, also I note with shame the number of spelling mistakes I am making, I must slow down a bit.

My point regarding the stakeholder issue is that the responsibility of dispersement has been removed from the Landlord. A landlord can no longer dictate the apportionment of the deposit as it has to be mutually agreed.

As a matter of interst I took this to legal advisors and the response is far from clear. The agent has taken a legal responsibility on by becoming a stakeholder. It would be normal for the tenant to sue the agent and the tenant and to obtain a proof of debt to allow them to become a creditor against the insolvency process of the agency.

Not enormously clear I'm afraid but it demonstrates the water can be muddied depending on circumstances.

[Paul_f]

If you subscribe to the Letting Update Journal you will find their legal editor Phillip Hopkins argues the point quite well in one of their recent editions.

Talking of mis-spelling what is "dispersement"? Surely you mean disbursement!