Letting Agent Holding Deposit

[bigron82]

Hi there,

 

My girlfriend has recently been looking for a flat with two others and found one over a week ago. On the same day as viewing they signed a precontract agreement for the offer they were making of £280 per week, furnished prior to moving in. They also paid £400 'holding deposit'. The offer was put to the landlord and he did not accept it, (as other agents were still showing people round the property!) and apparently a price of £310 per week UNFURNISHED was agreed VERBALLY with the letting agent and my one of my girlfriends flatmates. The landlord has obviosuly received other offers on the property and is now suggesting even more changes and increases in price. Sensibly they have decided to cut loose and find somewhere else. As the holding deposit was given on the agreement that was signed it should surely be returned but the letting agent is now claiming that they will not have it returned and have lost it due to pulling out!

 

My understanding of the law is that a PENALTY charge cannot be legally upheld if it is not representative of the costs incurred, which £400 is obviosuly not. However, my legal knowledge pretty much stops there. I have suggested to her that they should inform the letting agent they will filing a case at the small claims court, in writing, and allow them 7 days to return the payment and then file on moneyclaim.

 

If there is anyone who knows the LEGAL standpoint of this situation I would be most grateful. Any similar experiences and results would also be useful.

 

 

Cheers

[Seminole]

It depends what it says in the agreement they signed. Someone would be able to give specific legal advice on this but I would make it clear to the lettings agency that they are not only considering the county court but also letting all the local newspapers know what a bunch of shysters they are.

[bigron82]

As far as I understand a contract can still be void if it is deemed illegal, or at the very least will not be upheld in court. In terms of a charge of £400, regardless of the terms of the contract I believe the folling to be true:

 

"if the sum specified in the contract is not a genuine pre-estimate of the loss that will be incurred but is excessive and is inserted in terrorem (from Latin, as a warning or deterrent, basically to frighten the other party) the courts call this a “penalty” and will not enforce it."

 

(taken from http://www.bankchargeshell.co.uk/charges.html)

 

whilst this excerpt is not specific I believe it applies to contract law in general.

 

I think a gumtree posting will be made to inform people of these agents.

[alexpalex15]

Hello, I'm new to this, but I'm seeking assistance because I've experienced the same scenario as bigron82 had described.

 

Basically, I've been charged a holding deposit of £150 over the phone in order to reserve a flat. To cut a long story short, ultimately, the estate agent is now refusing to refund the money after we weren't willing to approve the guarantor to complete a credit check.

 

My wife and I are both in full time employment, never had a problem paying our rent, good tenants (with two previous landlord references), have provided every piece of personal information possible (ID, NI number bankstatements, wageslips, utility bills, proof of guarantor's homeownership), yet this particular agent wants to do a credit check on my mother-in-law who'd sign as our guarantor.

 

We find this far too intrusive and argued that WE should be the ones having our credit checked if WE'll be the ones renting. However the agent said that due to the recent changes in the law as of April, 2007, this is a mandatory requirement. I'm not able/(nor willing) to provide a member of my family as guarantor because they reside outside of the UK.

 

So, my question is: Is this legal? Can they actually ask for a credit check to be done on the guarantor? And if refused, are they able to withhold our deposit of £150? Any help would be greatly appreciated! Thanks!

[Joa]

It is entirely within landlord's and agency's rights to require a guarantor and they may decide to follow this procedure even in cases like yours; good credit checks, references etc. If guarantor required, it is obvious that the credit check will be also run on the guarantor as otherwise the guarantor may be as good as a chocolate teapot. Therefore in my opinion you will not achive anything by force but rather should try to negotiate; offer for example few months rent up-front or increase your deposit etc. If the landlord is desperate to avoid his property standing empty, you may get through to him/her (try to avoid negotiating through the agents as they will be more beaurocratic).

And if refused, are they able to withhold our deposit of £150?

- sadly, yes, unless you have something in writing to confirm otherwise.

[Aequitas]

A "holding deposit" is surely a payment to make sure they do not negotiate with anyone else. The agent represents the landlord. If there is a contract what is it? It must to be hold the flat on the terms agreed. They do not wish to let on the terms agreed. If there is no contract then the deposit must be returned. If the deposit was to be held against rent, then if there is no tenancy there is no rent, so it must be returned.

 

Tell the agent that if there was a contract you will take the property on the terms agreed. If he says that there was no contract ask on what basis he thinks he can retain the deposit.

[Joa]

I think that so called "retainer" or "holding" deposits are an ugly minefield. Very often agents do not even suspend negotiation with other interested parties and do not take the property off the market- despite clients paying them to do so in a form of a holding deposit. If the prospective tenant then walks away or does not seem to fulfill requirement, then the landlord cannot be held responsible. The holding deposit is a separate matter from the main contract; in my mind. It does not lead or conects with a tenancy agremeent. It is a simple specific agreement for a single service; "make this property available only to me whilst we mutally consider entering into a tenancy contract and I pay you for it." And therefore it does not matter if the clients gets the property or not- the service was provided and money exchanged hands.

Sometimes there is something in writing which makes everybody's position more clear, but most often then not, it is just a verbal agreement (yeah, I know it's valid but try proving it in court). Sometimes holding deposit is included in amount od security deposit, if client is successful.

 

If Alex wants to nab the agents, he would have better chance of sucess by investigating if the agents did in fact do what they primised to when they took his money (took the property off the market, stopped showing people around etc) rather then arguing that no tenancy contract means no right to withhold holding deposit.

I would be interested in opinion of others as "holding" deposits cause so much grief!

[Joa]

I found this Student Housing: Holding Deposits Campaign which may be of interest to Alex as it states: If an offer is not accepted because the credit referencing checks fail or the prospective tenant is unable to provide financial guarantors, then most letting agents would consider that they are entitled to keep either some or all of the holding deposit. Fortunately the Contract Regulation Unit of the Office of Fair Trading is fairly clear on this point:

 

“Where the tenancy does not go ahead because the landlord or agent decides not to proceed, whether this is on the basis of a failed reference check or not, then we take the view that they are not entitled to charge the tenant for the costs they have incurred because it is the landlord/agent who has breached the agreement, not the tenant. If a tenant puts down a holding deposit, provides accurate information about themselves and does not withdraw from the agreement, we see no justification for the landlord/agent seeking to keep any of the tenant's monies on the basis that the landlord/agent decides not to proceed with the tenancy.”

 

In our experience, letting agents simply do not understand or accept this.

 

The above link undermines my previous post because I argued that nothing can be done about holding deposit not being refunded if client backs out- and I am very glad, it's good to learn.

I would therefore find out whether the agency belongs to any professional body like ARLA etc and also write to local Trading Standards.

[alexpalex15]

Thank you for your replies. Much appreciated information. I was a little worried with Joa's first response. I'm glad to see there is a sense of justice in the system. And at the moment, I'm not as worried about the £150 deposit because, from the research I've done, and your previous posts, they don't have a leg to stand on in keeping this money. It was a fee charged over the phone in order to hold the property and took place before I had signed a thing. The landlord incurred no costs whatsoever. And the property can still be put on the market.

 

But, I think what I was really trying to get at was whether an agency can make up any policy they want with regards to guarantors. I've never experienced anything like this after renting for several years (nor had the person I spoke to from the Citizen's Advice Bureau) and I can't understand why a credit check needs to be completed by the guarantor? In the past, a letter and a signature was sufficient. Also, according to them and they're policy'; this is a mandatory requirement as of April 2007 due to the change in tenancy rights, which I don't believe. Does anyone who knows something about property law know this to be true? Can an agency require a potential tenant's guarantor to consent to a credit check?

 

Thanks once again for your help.

[Aequitas]

I would regard it as fairly normal for a landlord to want to make a credit check on a guarantor - an exception would perhaps be when parents are standing as guarantors for students when no other guarantor is likely to be forthcoming and any guarantor is better than none.

 

In the case of non-students guarantees should be resisted except where a credit check reveals a problem.

 

I am not aware of any rule of law that requires a credit check on either tenants or guarantors.

[alexpalex15]

Once again, thanks for the reply Aequitas.

 

I think I forgot to mention that my wife and I are both 27 years of age. I understand these measures need to be taken with regards to students, however we've supplied every financial reference possible, and the estate agents are still asking for a guarantor. Not only that, but they stipulate that the guarantor must be: a) in full-time employment. b) a homeowner within the UK.

 

My research (taken from Citizen's Advice Bureau) has indicated the following:

 

"If a tenant is unable to provide a financial reference, for example, because s/he is a student or has only recently started working, the landlord may ask for a guarantor. This would involve a parent or other person promising to meet the rental payments and other financial obligations, should the tenant fail to do so. The guarantor will be legally liable if the guarantee is drawn up properly. The landlord should be referred to a solicitor to do this."

 

My question is now: Can they legally require a guarantor for everyone? (i.e. non-students/Full-time working professionals?) And what if my wife and I did not have family in the UK to ask this enormous favour? Would we be refused? I find this to be extremely discriminatory.

[Aequitas]

Even if there is no justification for a guarantor a landlord can still ask for one. It may be that this particular landlord has had problems with payment and does not want to be caught out again.

 

The bottom line is that the landlord does not have to let to anyone who does not meet his terms, whether it be the amount of rent, length of term or providing a guarantor.

[Joa]

We've got to remember that landlord is entrusting a lot to the tenant; hundreds of thousands worth of asset, security of the mortgage repayments if property was purchased on a Buy to Let- therefore he wants to protect himself from any mishaps as best as he can. Legally there is no requirement but neither a ban on guarantors in any specific situation. It is up to the landlord.

But I am still saying, as before; try to get through to the landlord, not the agents, they are, let's say, very limited in their discretion.

[alexpalex15]

Thanks for all the help everyone.

 

I can't say it all went smoothly, however I was able to put down 2 months deposit (through the agency unfortunately) without having a guarantor or a credit check and I've since moved in.

 

So, all in all, it worked out ok. Thanks again.

[Chemicalworld]

Hello, and I have a similar problem, well issue with the estate agents. I am a student and have found a flat for June 2009. I have completed all paperwork, put a deposit down, but the estate agent is still insistent on having the guarantor's bank details! My guarantor are my parents and I thought that if I couldn't pay a certain amount, they would contact my guarantor for the payments. Is it correct practice for the landlord and estate agent to request bank sort code and account number of the guarantor if they have my details?

 

Thanks

xxx

[Fluvien]

Hi there

 

I am writing in repsonse to the issue regarding agencies holding deposit as I have a very similar issue.

 

I viewed a house through an estate agents called Northwood who are a national company regulated by the property odmundbund and and NALS whoever they are.

 

I saw the property and had some reservations but I was told by the estate agent showing me round that I should be grateful as I am a lone parent that will need to claim a small amount of housing allowances and that not many estate agents will help people who have to claim benefits.

 

With this is mind I took the application form which stated the requirements of lots of ID, a garantor who must provide lots of ID, own a home and earn in excess of £30 K PA and if I wish to proceed, I must pay a £200 "holding deposit"

 

This put me off as the property is unfurnished and I am short on money anyway but given his "I should be grateful" comment and after a second viewing, I managed to scrape together the £200 to hold the property.

 

The agents requested that I provide the holding fee, bank statements, proof of address, wage slips and passport and my dad had to provide the same as the garantor with additional mortgage statement and no fee.

 

There was no mention of financial credit checks but it did say on the application if I had any CCJ's, I am unsure as I have moved addresses but I put the one down that I thought I had.

 

Anyway over a week has gone by and the estate agents still have the property on the market and I even got my friend to ring up about it and they offered her a viewing. They have not contacted me to update me and I have even chased up my references for them to assist.

 

Today they have told me that the landlord isn't keen on me as I have 2 CCJ's and as I only declared one they will not pay me my fee back, of course I really did not know about the other and would have told them if they did or even if they questioned me on the application form. They made no mention that a CCJ would affect my application and that the landlords did not like them and why did they need a garantor anyway?

 

I am really upset, I am 5 months pregnant and going to be homeless in 2 months and without my money back I will not be able to touch an estate agents again.. If I knew a CCJ was an issue then I would not have used the estate agents. They mislead me in thinking that the fee would hold the property when they didn't and that I would get the property as they had understanding landlords - how wrong I was??

 

Any advice please??

[elstevo]

Here's what the Office of Fair Trading has to say about holding deposits:

“Where the tenancy does not go ahead because the landlord or agent decides not to proceed, whether this is on the basis of a failed reference check or not, then we take the view that they are not entitled to charge the tenant for the costs they have incurred because it is the landlord/agent who has breached the agreement, not the tenant. If a tenant puts down a holding deposit, provides accurate information about themselves and does not withdraw from the agreement, we see no justification for the landlord/agent seeking to keep any of the tenant's monies on the basis that the landlord/agent decides not to proceed with the tenancy .”

 

Hope this helps.

[Ed999]

If a tenant puts down a holding deposit, provides accurate information about themselves and does not withdraw from the agreement...

 

 

Unfortunately, in this case the prospective tenant did not provide accurate information about herself. She had a rather worse credit history than she declared. So, IMHO, the OFT advice has been complied with, as they agree that in such circumstances the landlord is fully entitled to keep the holding deposit.

 

Also, IMHO the OFT advice is merely that: advice. It has no legal force.

 

 

IMHO, a reservation contract - or 'holding' contract - merely binds the landlord not to offer a tenancy to someone else. It doesn't commit him to agree one with the party who pays the holding deposit. It's just a way of reserving a property while credit references on the prospective tenant are obtained.

 

 

For a contract to be validly created, and therefore legally binding, there must be -

 

(a) an offer to reserve the property, made by the landlord;

(b) an acceptance of that offer by the tenant;

© a payment, usually of money, by the tenant;

(d) an intention to create legal relations - which is presumed to exist unless the landlord and tenant are related by blood or marriage.

 

If any of those elements is missing, there might not be a valid holding contract. If the holding contract was not valid, there would be no legal basis for the letting agent or landlord retaining the holding deposit.

 

But those legal requirements are normally satisfied if both parties sign a written contract, and the tenant pays the agreed amount. A verbal agreement is equally binding, if all those four elements are present.

 

 

You didn't have any legal obligation to pay a holding deposit. It is merely an agreement for the landlord to take the property off the market while the credit checks are carried out. Those checks could have been done without the property being taken off the market.

 

Where you pay a deposit to reserve premises, there will typically be an implied condition that it is non-refundable: you are paying only for the property to be taken off the market for a short time; you are not buying a guarantee of a tenancy.

 

You did not sign a tenancy agreement. So although you have not ended up with a tenancy, you had no contract promising you one.

 

A holding deposit cannot buy a tenancy, because a mere agreement to agree is void for uncertainty. That was what you were doing - in effect - in entering negotiations which you merely hoped would end up in a tenancy agreement. The fact that no draft tenancy contract was attached to the holding contract is perhaps conclusive evidence on that point.

 

If the holding contract was agreed verbally, the outcome is probably the same, as the principle is not affected, i.e. that such a contract is not a guarantee that a tenancy will be granted.

Edited June 30, 2011 by Ed999

[Steve__M]

Where you pay a deposit to reserve premises, there will typically be an implied condition that it is non-refundable: you are paying only for the property to be taken off the market for a short time; you are not buying a guarantee of a tenancy.

 

I disagree with this. If this is to be the case then it should be in writing, not implied. If it is not in writing then the payment may be only an expression of serious intent, and perhaps an implied agreement to cover the costs of the agency if the *tenant* not the landlord withdraws.

 

I also disagree that one extra CCJ is necessarily sufficient excuse to withhold the deposit, particularly as there is a guarantor.

 

Unfortunately it will probably be a fight to get the money back.

[Ed999]

Where you pay a deposit to reserve premises, there will typically be an implied condition that it is non-refundable: you are paying only for the property to be taken off the market for a short time; you are not buying a guarantee of a tenancy.

 

I disagree with this. If this is to be the case then it should be in writing, not implied.

 

 

I don't see how that could possibly be so.

 

Your proposal demands writing; but it is well established law that such a contract is valid even if verbal. Almost no contracts require writing, except those for the sale of land. Like it or not, a verbal contract can validly be formed to reserve a property while credit checks are done.

 

If you had suggested a breach of contract by the landlord, who seems to have cheated on the poster by offering the premises for let during the period of the reservation, I might have some sympathy for your argument.

 

 

If it is not in writing then the payment may be only an expression of serious intent, and perhaps an implied agreement to cover the costs of the agency if the *tenant* not the landlord withdraws.

 

 

I don't think so, because the punter is not being offered a tenancy at this stage. The landlord has not progressed beyond considering whether the poster is a good credit risk.

 

The agency's admin costs are certainly non-refundable, since those are for paying the cost of the credit check, and for paying the admin expenses related to that check.

 

 

 

I also disagree that one extra CCJ is necessarily sufficient excuse to withhold the deposit, particularly as there is a guarantor.

 

 

The landlord's discretion is unchallengeable. He is trying to find a creditworthy tenant, not playing some kind of mind game with the poster.

 

No court decision, to my knowledge, has ever successfully challenged his discretion.

 

The basic point is one you seem reluctant to face: the poster didn't tell the truth. The landlord is justified, in my opinion, of taking a dim view of that. It goes to the heart of the matter, namely whether the landlord can have confidence in the applicant.

[NW1]

Hi there,

 

A very brief but similar problem. I put down a holding deposit on a flat. We are subsequently unable to all live together as one tenant is unable to move in. However we were expressly told they would need all our signatures as well as the holding deposit to take the flat off the market. We have not supplied any signatures. Am I right in thinking that there has been no consideration for the money we have handed over and so no legally binding contract has been formed and we are entitled to receive our holding deposit back?

 

Many thanks

 

NW1

[mariner51]

Re - last post NW1

 

Whilst no T agreement may have been created due to not taking possession, there is a (verbal) contract, which you breached by failure to provide sigs. so agency could sue for breach of contract.

As for holding deposit, OFT statement (above) would suggest it need not be repaid as you (T) failed to provide required sigs and until sigs + h deposit were received, there was no oblgation for the agent/LL to take the flat 'off the market'.

[Snorkerz]

I disagree with Mariner51. The deposit is refundable, less any costs incured by the agency as a result of your aborted application.

[mariner51]

??????????

 

By NW1 s own admission

" I put down a holding deposit on a flat. ...... However we were expressly told they would need all our signatures as well as the holding deposit to take the flat off the market. We have not supplied any signatures."

 

Thus there was a contract formed to take the property off the market, accepted by payment (consideration) of holding deposit but voided by prosp Ts failing to fulfil other conditions ie supply of all sigs. Was it stated at anytime the holding dep was refundable?

IME any holding dep would cf to T deposit when AST signed (rep LA).

I refer my learned friend to earlier informed opinions in this thread on the matter.

[PackisBack11]

Recently I viewed a home with an agent which I decided I would like to take. I filled out an application and was approved. I told the agent that I could not move in for about 10 days (till the first of the month) which they agreed was fine, I just needed to put down a deposit to hold the property. I never signed any agreement or anything about a deposit, besides the check itself, nor was I asked to. Later (about 7 days) I had a change of mind and decided that I did not want the home. So my question is: Are they entitled to my deposit?