Non-refundable holding deposit: is it legal?

[Alastrum]

I have just (today) viewed a flat I'd like to rent. The lettings agent has told me that, to secure it, I need to pay a £500 deposit that is non-refundable in the event of me not being accepted as a tenant, whatever the reason...

 

Obviously, I'm a little concerned by this: what's stopping the agent/landlord taking £500 off everyone who comes to view the flat, and never letting it out? Instead of a monthly rent, they could be making £500 a week, or even a day, out of a such a [problem]....

 

I can't afford to keep paying £500 just to view a flat! So, is this legal? If the Landlord rejects me for any reason, why can't I simply get my money back? it's not as if the amount of work they've done is worth £500....

[Steve__M]

It's probably not unlawful for them to do this, if it is clearly stated to you up front and if they are serious about you as a tenant, but it is completely unreasonable.

 

You could try negotiating a different deal or look elsewhere.

 

Did they state this clearly, or did you find out because you interrogated them. If the latter, I would name and shame them.

[Aequitas]

See my post here: http://www.landlordzone.co.uk/forums/showthread.php?13840-Deposits-not-held-for-security

 

See also here page 20 onwards and page 79: http://www.oft.gov.uk/shared_oft/reports/unfair_contract_terms/oft356.pdf

 

You will note that the OFT takes a more lenient view than I do!

[Steve__M]

I suppose I should say that while it could be unlawful for reasons given by Aequitus, the problem is getting your money back once you've paid it over, because it is an effort to go to court and your case may be uncertain.

 

And the OFT guidance is applicable to "consumer contracts". A landlord with one or two houses would not fall under its scope, I understand.

[Aequitas]

I suppose I should say that while it could be unlawful for reasons given by Aequitus, the problem is getting your money back once you've paid it over, because it is an effort to go to court and your case may be uncertain.

 

True enough, but it seems that the OP has not actually paid anything. The advice has to be not to and to refer the agent to the OFT recommendations.

 

And the OFT guidance is applicable to "consumer contracts". A landlord with one or two houses would not fall under its scope, I understand.

 

If the UTCCR apply to tenancy agreements they must apply to "pre-agreements".

[marlow]

Why would anyone EVER deal with such a retarded letting agent??? Tell them to go **** themselves and find a NORMAL agent!

[Aequitas]

If what we read on forums like this is anything to go by, it does seem to be the case that as soon as a punter shows an interest he has to hand over a wad of money.

[Ed999]

And the OFT guidance is applicable to "consumer contracts". A landlord with one or two houses would not fall under its scope, I understand.

 

 

The Unfair Terms in Consumer Contracts Regulations 1999 are summarised at this link: Unfair Terms in Consumer Contracts Regulations - BERR

 

The regulations provide that a term which has not been individually negotiated in a consumer contract is unfair (and hence not binding on the consumer) if it causes a significant imbalance in the rights and obligations of the parties, to the detriment of the consumer.

 

It may be difficult in a private shorthold letting to prove that the contract was a consumer contract. At the very least, the tenant must show that the landlord is in business. If the landlord is only letting out a single property, for instance, this would not be so.

 

Even if the landlord is in business, if he has negotiated the letting contract with the tenant, the tenant has no case, because the regulations only apply where the terms were not individually negotiated (the "printed form" test.)

 

Thirdly, the tenant might not be able to show that the term in question causes a "significant imbalance" between his rights and those of the landlord, especially where the landlord owns only 2 or 3 properties.

 

This is because, unlike a bank (which has a monopoly of banking business, or which forms a cartel with a tiny handful of other banks to do so), a small private landlord does not monopolise - or nearly monopolise - the market. The tenant can rent from Joe Bloggs down the street instead. So it is hard to see *any* comparison between a small private landlord and a giant monopolistic corporation like a bank.

 

Under the 1999 Regulations, the Office of Fair Trading (OFT) has an obligation to consider any complaint made to it about the fairness of any contract term.

 

Only the OFT and certain other named bodies are empowered to enforce the regulations. Therefore a tenant cannot just sue a landlord on a whim, if he fancies that the regulations have been breached! He must persuade the OFT to sue on his behalf, which no tenant has succeeded in persuading it to do.

 

It is most unlikely that the regulations will ever be held to apply to a private shorthold letting.

 

 

The 1999 Regulations are on-line at:

 

http://www.opsi.gov.uk/si/si1999/19992083.htm

 

 

Notwithstanding the UTCCR, the common law on penalties would apply, in particular the requirement for the charge to be a genuine pre-estimate of costs, and not a profit-making exercise.

 

The leading case is Dunlop Pneumatic Tyre Co Ltd v. New Garage and Motor Co Ltd [1915] A.C. 79.

[Aequitas]

The case of R (Khatun and others) V Newnham London Borough held that the UTCCR apply to tenancy agreements. The grant of a tenancy is an activity carried out with a view to making a profit and is therefore a business.

 

Whilst the UTCCR give the Director General of Fair Trading certain powers, they do not include the power to interpret the regulations - that is the business of the Court. Any consumer can apply to the Court to decide whether a particular term is unfair.

[Ed999]

Any consumer can apply to the Court to decide whether a particular term is unfair.

 

 

R (Khatun and others) v Newham London Borough concerned an application by a homeless person for judicial review of the conditions attached by a Local Authority to its offer of a shorthold tenancy.

 

The homeless person was treated by the Court of Appeal as, broadly speaking, a 'consumer'. And it found that the 1999 Regulations were capable of applying to a contract relating to land, such as a tenancy agreement. See paragraph 83 in the Court of Appeal judgement.

 

But the Court of Appeal made no decision on the effect of the Regulations. The Administrative Court had decided to refer that issue to the Office of Fair Trading (OFT), the regulator appointed under the Regulations, and the Appeal Court declined to interfere with that decision. See paragraph 4 in the Court of Appeal judgement.

 

 

So it is incorrect to say that a consumer can apply to the Court.

 

In the Newham case, firstly, the application to the court was not to challenge a provision in the tenancy agreement, it was to challenge the conditions of the Council's housing policy. Broadly, the 'consumer' wanted a choice of tenancy; i.e. wanted to be offered more than one property, and to be able to pick and choose. But none of the terms of the tenancy agreement were objected to.

 

Secondly, the 'consumer' was not applying on the basis of any right to do so in the Regulations: they confered no such right. The Court declined to judge the effect of the Regulations, and referred the matter to the OFT. See paragraph 4 in the Court of Appeal judgement.

 

Thirdly, the application was for judicial review. This is a means of challenging a public law decision made by a public authority: it cannot be used to challenge a decision of a private individual, such as a private landlord.

 

In Newham the consumer got no decision from the Court on the effect of the 1999 Regulations, which transferred the matter to the OFT for it to decide the matter. The Court case considered only the public law aspects of a public authority's exercise of its statutory duty toward homeless persons.

Edited July 16, 2011 by Ed999

[Alastrum]

Just thought I'd update this with some extra info.

 

I went ahead and paid the £500, for several reasons: firstly, I like the flat. It's in a nice area, it's a good size, it's in good condition, it's about 20 minutes walk from my workplace (saving me both time and travel money), and it's approximately £300 per month CHEAPER than similar properties in the area. For me, it's perfect.

 

Secondly, I raised my concerns with the agent. I was told that "This sum is deductible from the first month's rent, but in the event that you withdraw your offer it will be retained to cover administration costs." I was also told that if my references failed to satisfy, then I wouldn't be granted the tenancy, and the £500 would be retained. I was told that all the referencing agency was interested in was whether or not I could afford the monthly rent.

 

Thirdly, the area concerned is quite small, and there are no other estate agents in the area. I'd have to go through the same process, even if I chose another flat. So, much as I'd have preferred to find somewhere with less hassle, I'm stuck with them.

 

So, confident that I'd pass with flying colours anyway, I went ahead.

 

Hmmm, now I'm having problems with them accepting my references. Firstly, I should explain about my job. I work in security, for a Royal VIP. Obviously, for security reasons, I cannot reveal who I work for on this forum. And for those same security reasons, there is certain information about my job and my employer that I cannot reveal to the lettings agent or the company doing the reference checks.

 

I was able however, to show them a letter of reference from my employer, confirming I work for them, and how much I am paid. I was also able to show them 6 months worth of bank statements showing how much was paid into my account every month. I was also able to show them rent receipts from my current landlord, plus a good reference from him.

 

They have come back to me and said I have "insufficient funds" to be able to afford the rent every month. This is nonsense: the rent is £895 a month, and my statements show an average of £2900 per month going into my account. The rent is actually cheaper than my current rent, and I manage to pay that and still live quite comfortably. I have no car, no dependents, and so my outgoings are low. So then they asked me to provide a guarantor. A guarantor!! I'm 49 years old, for ****'s sake! Not some 19 year old student. Anyway, I bit my tongue, and put forward my mother (with her agreement). Despite her advanced years, mum is still actually working: not because she needs the money, but because she loves her job. Now, although she's not in security (LOL), she does have a similar job to me, in that she also has a Royal employer (a different one to me, obviously). Mum actually lives, for 11 months of the year, in a castle.

 

The reference agency came back and said that mum too had "insufficient funds" to cover both mine and her outgoings! I asked them precisely what outgoings do they think my mum has? She lives rent-free for 11 months of the year, and the remainder she spends in the home she has owned for over 40 years. She gets all her meals provided. And as a lady in her 70's, she's not exactly out buying shoes and clothes every weekend. She is perfectly able to cover my rent if she had to, if for some unforeseen event I couldn't pay my rent one month. They didn't respond to that question...

 

They came back demanding I give certain information, financial etc., about my employer: obviously, I can't give them this! I'll get fired. Besides, I really don't see how it is at all relevant anyway.

 

So, I'm currently trying to sort this out. It seems that the referencing agency has a particular set of boxes to tick, and both my and my mum's rather unusual jobs don't fit their little boxes, and no-one I'm dealing with has an iota of independent common sense to be able to look at the info I've provided and put it all together. It doesn't take a genius to see that if I have a proven job, and a proven income, then the money going into my account every month must be coming from that job!

 

I'm beginning to wonder if this is some sort of [problem]? They advertise a nice property at a cheaper than the market rate to attract people; then they take a £500 "deposit" off each of them, and fail them on the reference check for spurious reasons; they could have as many as 10 people a month applying for this flat, earning themselves anything up to £5000 a month; far more profitable than merely renting it out!

 

Anyway, whether or not it is a [problem], I'm fully expecting to fail this ridiculous referencing process and for them to try and retain the £500. Thanks to the replies already received, it seems that it may be unfair for them to do so (besides, I'll need it back to put as a deposit on another place, if I don't get this one!).

 

So, if anyone has any suggestions on how to move this forward, I'd be grateful...

[Aequitas]

They cannot retain the £500 on the grounds that your income is insufficient because they ought to have told you what income they expected you to show before they took your money.

[Surfer01]

It seems as if it could be con artists at work!

[perplexity]

So, if anyone has any suggestions on how to move this forward, I'd be grateful...

 

Do you happen to have a written copy of the terms and conditions, to see exactly what you were supposed to get for the £500?