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

[comanche]

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.