AST Clauses, Holding Deposits and Affordability Checks

Hi Simon

Your additional clauses seem to be fair, clear and not unreasonable, well done. Please don't sue me if they don't work, I'm not insured to give professional advice, this is just my personal opinion.

I don't do holding deposits, I prefer to start a tenancy early and discount it significantly for an initial period - BUT only if I really have to. I hate void periods and think holding deposits are more trouble than they are worth. Having said that, I don't operate in the student lettings market where I understand that holding deposits can be a vital component of the business model.

With regards to affordability checks, my rule of thumb is that is the referencing company are prepared to back their judgement by offering Rent Guarantee Insurance that's good enough for me. I also recommend you to read this FREE guide to finding perfect tenants >>> http://lettingagentsonline.co.uk/free-guide-to-finding-perfect-tenants/
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Thanks for the mention and the link Mark 🙂

Note for Simon, if you are at all concerned about rent arrears or having to evict bad payers please take a look at this >>> http://lettingagentsonline.co.uk/rent-on-time-every-time/
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Thanks for your comments Mark and Adam.

I was surprised to hear that you don't do holding deposits Mark but, since you have infinitely more experience than me, assume that it's a sound approach. I guess the tenant paying their referencing fees is evidence of their commitment. I was also surprised to read the National Lettings article saying that the holding deposit is usually the same as the damage deposit. Four to six weeks rent as a holding deposit can't be right?!

Good point about the RGI backing for the referencing companies. If RGI only costs about 1% of the rental income, the risk is probably much less than 1% on tenants defaulting or causing damage.

Adam, I can see how the 'rent on time every time' will appeal to some people but, as long as short term cash flow isn't an issue, it doesn't seem to offer much more than RGI yet is significantly more expensive. Thanks anyway though.

Clauses are fine especially as the second is word for word in an agreement I know very well - be careful not to be accused of breaching copyright or passing off.

Anything called deposit is dangerous and much depends on not wehy the money is take up front, but what hapooens to it later, and exactly when. Call anything like that a reservation fee, it might still be a deposit but is camouflaged as best you can. Amount is critical - start taking £1000 on a £750 rent and that will be a deposit for certain. I'd suggest no more than 50% of rent.

You must also be VERY specific about what happens to it if the tenant drops out. Under Consumer Law you cannot make a deposit fully non refundable because it is a payment made as part performance of a contract. You can only deduct reasonable costs, not start charging rent in lieu etc. Indeed if you do then it was a deposit all along.

Referencing companies usually allow 40% maximum of gross income to pay the rent - 35% is a very safe yardstick

I have no problem with your first clause, but the second I disagree with completely. I suspect it would be difficult to prove if your tenants have been "heavy handed" and if an appliance stops working and you do not replace it, could lead to a dispute with the rent that is best avoided. We had a tenant that did not look after the fridge/freezer and we had to throw it away once they had left as the whole thing was a solid block of ice! We bought a new one once they vacated and they sent a thank you letter for being fair with their deposit, but if it had stopped working during their tenancy we would have replaced it at that time as you cannot do without a fridge/freezer and sorted out the money between us, or at the end of the tenancy.

Holding deposit - 6 weeks the norm in London.

Affordability checks - yes we find them appropriate.

Thanks for the comments IO. I was going to ask for 25% of rent as a 'reservation fee', although am having second thoughts and wondering if it's more trouble than it's worth.

I was aware that it has to be refunded if the landlord declines the prospective tenant, but had thought that you were entitled to deduct for lost rent if they pull out. In my template for a receipt, I had:
"If the prospective tenant fails to progress the tenancy for any reason, or provides inaccurate information about themselves which leads to a failed reference check, the holding deposit will not be refunded."
I can see how the above statement might be considered an unfair term but, if it were changed to deductions for "reasonable costs" or something, I can't see why you couldn't keep the reservation fee (assuming you couldn't fill the property and had an enforced void)? Isn't it similar to losing deposits for late cancellation of restaurant bookings, or missed appointments? In any case, I will amend my statement, so thanks again for the advice.

Yvette

You may not like it and it is a practice I discourage with my clients, but there is absolutely no legal reason why a Landlord cannot disclaim repair and replacement responsibility. The alternative is simply to remove the item.

I think a better technique is a supplementary inventory, a page added on and signed by both with statements to the effect that say the tumble dryer is safe and fit for use but if it fails the Landlord will not be responsible for repair or replacement.

But I discourage it and I don't like it in an agreement though it is bevomeing more of a standard practice.

Forgot to mention in first post by the way that if it is an HMO then the clause would not be legal.

Simon

Sorry missed your post.

It is a debatable point but I certainly would never use the D word unless it was for what was beyond all dount THE deposit. Your wording could act like a silent friend and be a bit like it used to be in Scotland - OK if you can get away with it but if challenged smile and return the money less reasonable and easily justifiable costs.

Hi Yvette,

I agree that it would be very difficult to prove that tenants have been heavy handed with appliances, but is this not the very reason that you'd want the second clause? Otherwise you could be liable for replacing four or five appliances that you provided out of your own good will (admitedly tenants expect them nowadays).

Do you really mean 6 weeks for a holding deposit / reservation fee, or do you mean the damage deposit (to be protected)?

Good point Simon a 6 weeks holding deposit if challenged is going to be a deposit - too large an amount.

On these clauses I have just realised we are all missing the point of clause 2 it isn't for damage and heavty handedness, who broke something or did it just break is always a tricky one to prove.

The clause is there in case the item conks out and is beyond repair etc - so LL doesn't have to replace it.

I assume everyone is aware even in an agreement with no such clause, like yours Yvette, that any replacement item can be second hand with same expected life left in it as a failed item.

This assumes major repair not having reached end of life and so zero years left you couldn't replace for a tenant with that!!