Tenant security deposits for new development?

Reply to the comment left by "John Frith" at "05/04/2015 - 10:46":

"That implies that if the damages deposit is handed over before the contract is signed (which is usual), then the 30 days grace to lodge with an approved scheme starts from when the contract is signed, rather than the date the monies are handed over?"

The issue here is to determine when the contract for the tenancy is created. As I often say, landlords should be careful because the contract for the tenancy may be created _before_ the agreement is signed, and I'm guessing that this is what happens in the majority of cases.

When a prospective tenant pays a tenancy deposit, and e.g. first month rent in advance, usually it is because the contract for the tenancy has been created, whether the agreement has been signed or not.

Reply to the comment left by "John Frith" at "05/04/2015 - 11:34":

Perhaps, but that's not the point.

A holding deposit is not _intended_ as a security for "the performance of any obligations of the tenant, or the discharge of any liability of his".

As said, there is no tenant and the money is paid in exchange of the property being 'reserved' and as security if the _prospective_ tenant decides not to enter into a tenancy agreement later on.

Well if you agree or sign a tenancy before it actually commences then again you are storing up problems. If you agree a tenancy in advance and sign it all up and for some fault on the landlords part it does not take place then the landlord is liable to accomodate the tenant at his cost.

Far better to do it all on the day. Sign tenancy agreement, take deposit, take first months rent. In fact before you sign anything make sure the tenant has the cash on the day or has sent it by bank transfer and its in your account.

Reply to the comment left by "John Frith" at "05/04/2015 - 11:34":

John
I agree with Romain. As you have noted s212 of Housing Act 2004 says the "tenancy deposit" is intended to be held as as security for—
(a)the performance of any obligations of the tenant, or
(b)the discharge of any liability of his,
ARISING UNDER OR IN CONNECTION WITH the tenancy. (emphasis mine) (NB it does not say the INTENDED tenancy). Until the tenancy comes into existence the obligation to register the deposit does not kick in. (As an aside, if you were right John, the DPS and other custodians would have their work doubled if every "holding deposit" had to be registered and tenants would be annoyed if the landlord could not return it straightaway in the event of the letting not proceeding. It would also mean that where a landlord forfeits a holding deposit because the tenant fails to proceed the tenant could challenge it with the deposit custodian. The custodian would then have to arbitrate on the terms not of a tenancy but a pre-tenancy agreement. It is always possible that this is what the legislation entails but I doubt it as we would have seen this argument run before now.)

Another point to make is that whether it is called a deposit or a fee by the landlord is irrelevant as the courts will look at the substance of the arrangement.

That said, landlords would be prudent to have a written pre-tenancy agreement setting out the circumstances in which the holding deposit can be forfeited and stating, if it be the case, that in the event of the tenancy being completed it can be set against the sum required for the deposit and first instalment of rent.

Hi Ian.

I understand the argument that the legislation is not relevant because the tenancy is not in effect yet - however I believe this view to be a (widely held) misconception. And no-one has been able to satisfactorily prove me wrong (many have tried!).

I understand that most people believe that an agreement is not in place until the contract is signed, but I think this is wishful thinking - not law (and I think Romain agrees with me on that).

My understanding (and I don't claim to be an expert) is that there is an agreement in place the moment both parties agree in principle - and this doesn't have to be in writing, and it is definitely proved by the handing over of the holding deposit. The fact that both parties can still pull out before signing does not invalidate the fact that an agreement has been entered into as far as the deposit legislation is concerned.

I would also argue that the Acts use of "IN CONNECTION WITH", as you have quoted in your post, implies that as well.

I believe this interpretation is consistent with the spirit, and the letter of the deposit protection law.

You have pointed out some of the difficulties that such an interpretation would lead to. Well, unintended consequences of a law do not invalidate the law, as Superstrike has shown.

I'm slightly bemused because I have suggested a way (by taking a fee up front, and reducing the 1st months rent), which avoids all these problems.

The difference between a fee and a deposit, as I have used the terms, is that the fee is not used to fulfil contract (as it is not refundable), whereas the deposit might be used to fulfil the contract (eg go towards rent). This means that the fee does not fall within the definition of a tenancy deposit, and so doesn't need to be registered, whereas the deposit does, and therefore needs to be registered.

Ian and Romain. Bang on. Tenancy not in force until signed and enacted. At the time a holding fee is taken there is no offer of tenancy. Holding fees are taken to hold the property whilst the reference checks are carried out. Holding fees are not part of the tenants deposit and the receipt for any monies should specify this and state that the holding deposit is refundable against the first months rent. Otherwise as Ian states agents across the land would be registering part deposits willy -nilly And returning them. Ring the DPS and ask them as I have done and see what they say. And the NLA. We can all dance around our handbags all day but until its a tenancy theres no deposit and no need to protect until there is. Either that or agents and landlords across the country have been doing it wrong for years.