Forfeiture of holding deposits/reservation fees

Imagine this scenario. A prospective tenant, T, answers an ad and phones up and arranges to view a property. T meets the Landlord, L, and agrees to rent the property for 12 months starting in 14 days’ time at £900 per month. L asks for and T pays a reservation fee of £200 to take the property off the market and T signs an acknowledgement that the fee will be forfeited if T backs out. L takes up references and they are satisfactory. L agrees to meet T at the property at the end of 14 days to sign the tenancy.

The evening before the meeting T texts L and says: “I have decided not to proceed, because I have found another place I like better. Sorry to let you down. You can keep the £200.” L is understandably annoyed and retains the £200.

If this occurs before 1st June 2019 L is probably OK. However, once the Tenant Fees Act 2019 comes into force L may be shocked to receive a few weeks after T was due to move in a letter from T or his lawyer demanding the return of the £200 and threatening L with a fine of up to £5000 because L is in breach of the Tenant Fees Act 2019.

What is the breach? It is that L did not give T notice in writing within 7 days of the date T was supposed to move in that L was forfeiting the reservation fee because T had decided not to proceed. That is the effect of paragraph 5(1)(b) of Schedule 2 to the Act which says that even where there is a reason for keeping the fee it must be returned if the recipient did “not give the person who paid the deposit a notice in writing within the relevant period explaining why the person who received it intends not to repay it.” Alice in Wonderland stuff, you might think!

It gets worse. If what I have described were not bad enough, the Act does not define “notice in writing”. In law text messages are not normally considered notices in writing. If L simply sends a text message in response to T that may not count as “notice in writing”. L may have to serve formal signed written notice on T at T’s current address. L may have the address from taking up references but the Act does not say what happens if it is impossible to find T. As drafted the Act puts the onus on L.

Now if the case gets to court, L might well succeed if the judge takes a dim view of T’s behaviour. Will L risk it? If T wins then by definition L has breached the Act and may be liable for the fine. In the circumstances how many landlords would risk it? It will be safer (and L’s solicitor will probably advise) to repay the £200.

That will usually be the end of the matter but a really crooked T can still ask the Council to go after L, because a prohibited payment has been taken. One can envisage that some tenants might subtly ask for even more than the return of the £200 (perhaps as compensation for the time expense they have been put to in pointing out to L the error of his ways) in exchange for not pursuing L.

The Act is a blackmailer’s charter.

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