Agents in student cities and towns where it is commonplace for agreements to be signed up to ten months in advance, with deposits, holding fees, referencing fees and, commonly, the first month’s rent taken, have been warned that they could be breaking the law.
This is because the 2004 Housing Act says that all and any money paid in advance of a tenancy and which could or should be returned to the tenant is defined as a deposit.
Trade bodies and schemes – including ARLA, NALS and SAFEagent – have been asked to issue guidance as a matter of urgency.
As the law stands, not only should all the money taken in advance by agents be protected as a deposit, but the Prescribed Information should also be issued.
The issue is hotting up because from April, under the Localism Act, the time allowed for agents and landlords to protect deposits and give the Prescribed Information will be 30 days.
Whilst longer than the current 14 days, agents and landlords who do not both protect deposits and supply the Prescribed Information will inevitably be penalised under the new regime.
The current ‘get out of jail’ card, allowing agents and landlords to protect deposits and supply the information late, will be shuffled from the pack.
But agents and their landlords should also be aware that the new regime will take in existing tenancy agreements.
In other words, tenancies where deposits –ie, all money paid in advance – have not been properly protected and where the Prescribed Information has not been issued, are at risk.
As one of our knowledgeable posters, Industry Observer, noted, it is time to clean out the Augean stables now.
Industry Observer, who is a consultant in the lettings industry, felt that probably 95% of agents in Oxford – where the issue has been highlighted after students objected to paying out large sums of money so far in advance of taking up the tenancy – are in breach.
Another of our knowledgeable posters, IT expert Robert May, also raised serious accounting issues.
He said that taking money so far in advance from tenants meant that agents were holding unallocated cash, which should really have been picked up by auditors. He also criticised the lack of guidance from any of the industry bodies.
This is a complicated issue, but letting specialists are advised to look at our two previous stories plus the comments.
http://www.lettingagenttoday.co.uk/news_features/University-students-in-protest-at-early-rental-fees
http://www.lettingagenttoday.co.uk/news_features/Oxford-university-insists-it-supports-attempts-to-set-up-code
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Comments
Robert made the point about advanced rent being a deposit because it is intended to be failsafe if the tenant fails to pay the last month's rent, what the TDS says agrees with that yet the blog says the fear that advanced rent is a deposit is unfounded.
The blog also contradicts itslf, these sudent are being asked to sign the tenancy agreement so the deposit is a deposit and not a holding deposit.
Am I the only one more confused by this clarification?
I am sorry but this is a confused misreading of a number of pieces of legislation and case law which actually conflates several very different scenarios together. The Court of Appeal dealt with a lot of this in the case of UK Housing Alliance v Francis. My blog post discusses this issue in more detail here:
http://blog.anthonygold.co.uk/2012/03/tenancy-deposits-confusion-and-clarity/
Here is a link
http://blog.tds.gb.com/blog/when-is-a-deposit-not-a-deposit/
As the advice from TDS is clear but different to what I was told by by DCLG in January 2011. Listen to them.
I am sure before issuing the blog they will have checked with DCLG that "their view" is the same as that of DCLG
I wonder if I am wrong about the Race Relations act too.
TDS's view is that concerns over illegalities arising from the Localism Act are unfounded, because the Act doesn't alter the definition of a tenancy deposit. If a deposit
Mike Morgan is the Head of Adjudication and has posted a blog article to explain in more depth, which is on the TDS website.
Wow Lorraine, I hope it isn't this discussion that is giving you sleepless nights, 3:42 was the post time so you were up and typing before then!
I don't think anyone would complain at your system, it sounds both fair and practical.
Just from an interest point of view, what happens to students who fail to return after the summer break? Having signed the AST before they break up and before exam results are known, with consideration taken , the contract is formed. Isn’t there a degree of uncertainty about any tenancy signed it those circumstances?
Have I assumed correctly that you are taking, your fees, the rent and deposit in September rather than in June? If that is the case Agents in Oxford would do well to adopt your system as their scheme.
As an agent who has been in student letting from 2005 our company takes a holding fee from prospective tenants which secures a property before any AST is signed. Booking forms are completed which clearly states that the holding fee will become the Deposit at the beginning of the tenancy.
Marketing of student rentals begins 5 months ahead of the tenancy, and as students try to secure there accommodation early we have created the process to meet the demand of the customer.
AST's are normally signed 3 months ahead of the contract start date, and deposits are either lodged with DPS or protected with Mydeposits in the 30 days before the keys are provided to the tenants - the prescribed information is sent to all tenants via e-mail & they sign a document on acceptance of the keys to say they have seen the deposit information.
We would hope that our students feel that we are acting in their interests.
As an agent who has been in student letting from 2005 our company takes a holding fee from prospective tenants which secures a property before any AST is signed. Booking forms are completed which clearly states that the holding fee will become the Deposit at the beginning of the tenancy.
Marketing of student rentals begins 5 months ahead of the tenancy, and as students try to secure there accommodation early we have created the process to meet the demand of the customer.
AST's are normally signed 3 months ahead of the contract start date, and deposits are either lodged with DPS or protected with Mydeposits in the 30 days before the keys are provided to the tenants - the prescribed information is sent to all tenants via e-mail & they sign a document on acceptance of the keys to say they have seen the deposit information.
We would hope that our students feel that we are acting in their interests.
I will leave the legal expert to discuss that one, I consider a holding deposit of £1 enough consideration on the contract.
when taken so far in advance.
The REQUIREMENT to pay a deposit or rent 9 months early is contractual and is agreed by both sides. Only once it has been paid does it become a legal and indeed ethical matter.
Agreed, so with protection for both Landlord and Tenant provided adequately by the AST, What is the legal and ethical requirement to pay the first month’s rent and the deposit 9 months early?
I was asked to come up with a solution here is my suggestion:
The good agents of Oxford (Yay) could easily undermine the rogues (Boo Hiss) by adopting a Holding deposit scheme where only a token consideration is taken in place of the presently required full whack.
With the moral High ground seized and secured with all but the token deposits returned the onus will be focused in on the rogues (Boo Hiss) to come under the full gaze of the legislators. Those agents with properly ring fenced cash will have no problem complying with 2007 TDS regs, leaving those without to get creative.
In the meantime any agent not sure whether they have ITDs (inadvertent tenant deposits) can draw their own conclusion from this discussion.
Industry Observer says;
's45 of The Housing Act 1988 (unaffected by any subsequent Statute or Regs etc) alone is sufficient to clarify this.'
s45 of The Housing Act 1988 is an interpretation of Part I of said same Act. It makes no mention of rent in advance, tenant deposit or any payments whatsoever so I would welcome direction on this.
Industry Observer also says;
'The definition of a deposit in the 2004 Act is deliberately very wide'
Considering a bill was drafted, it's passage and then Parliament created the Act, surely that is just your subjective opinion.
Lastly he says;
'The money is paid in contemplation of the discharge of a future obligation by a tenant - the rent. Call it whatever you like read the Statute it is a deposit.'
I did read the Statute and thats NOT what it says, what it does say is money INTENDED to be held as SECURITY...........
I'm finding it difficult to correlate what you rely on and what is actually there.
Robert May says;
'A tenant is hardly responsible for paying rent on a property which burns down, is sold or repossessed in the 10 months since they handed over a sizeable wad of First month's rent'
Does the tenancy agreement not cover such circumstances as uninhabitable premises. Does it not also cover grounds for possession.
An AST is a legal document which, once signed forms a contract and offers both parties protection. The fixed term is a condition of that contract and it doesn't diminish protection just because it's in advance.
I apologise to both as I intend no offence but it's clear that there is a lot of misinterpretation.
That had me beat too Ray but I did find this;
http://www.legislation.gov.uk/ukpga/1988/50/section/15#text%3Ddeposit
Link to S45 HA1988
http://www.legislation.gov.uk/ukpga/1988/50/section/45
Everyone clear now?
No? me neither? no mention of rents or deposits or any reference with even the most tenuous link
I'm not shooting the messenger, I think these sort of forums are great for learning more about the industry, but it would be nice to see the message for ones self, written down in black and white instead of vague references to statute lol
Wow lots of comment and I will post later or tomorrow as up to eyeballs today.
I stand by every word previously posted and Ros is right and so is Robert May.
Don't shoot the messenger.
s45 of The Housing Act 1988 (unaffected by any subsequent Statute or Regs etc) alone is sufficient to clarify this.
The definition of a deposit in the 2004 Act is deliberately very wide - why do you think it is writtent that way.
I know this isn't popular - but that doesn't make it untrue. All agents (no pun intended!!) can carry on and do as they like. Doesn't bother me it won't be me paying fines as and when a case goes to Court.
The money is paid in contemplation of the discharge of a future obligation by a tenant - the rent. Call it whatever you like read the Statute it is a deposit.
But the point about this particular article was a warning that even the first month's rent could be deemed a deposit if the tenancy never materialises or changes for whatever reason.
A tenant is hardly responsible for paying rent on a property which burns down, is sold or repossessed in the 10 months since they handed over a sizeable wad of First month's rent In my opinion neither the first month's rent or deposit should not be collected until the tenancy and all the parties to the tenancy are certain. A nominal holding Deposit and an admin charge seem to me as the only monies that can be fairly charged. I can not think of a single reason why it would be beneficial for any agent to need or want to collect this money so far in advance.
Un-researched and off the cuff isn't really a fair accusation for this article Ray. If it brings the ambiguity of this legislation to the attention of Agents, NFoPP, NALS and SAFE who in turn seek guidance and clarity from DCLG, then LAT has done a good job and the industry can be seen to put its house in order rather than ignore and condone practices which would give us a genuinely bad press. Certainly having this level of uncertainty over legislation introduced 5 years ago doesn’t really show any of us in a good light
It is the process of holding un-allocated tenant money that links this particular story with Landlords and agents bypassing the deposit schemes. Money which is not assigned as either rent or a deposit is being held in limbo, it shows up as being in the Client’s account but it is then left to the Agent to decide its fate.
@ Roert May
Then its a shame the story didn't make that clear at the start instead of implying that 'any and all' money inc referencing fees and rent that could or should be returned to a tenant should be treated as a deposit.
Its unresearched, off the cuff articles like this that get the industry a bad name with the general public.
Landlords or agents trying to bypass the deposit scheme is not just related to student lets unfortunately.
@Robert May
"Advanced rent" collected in case the tenant fails to pay the last month's rent is a deposit, Advanced rent to cover the rent due isn't a deposit.
Absolutely agree with this too and 'Piggott v Slaven, Great Grimsby County Court 23 February 2009' confirms this because in that case it was ruled that money being held as security against a breach of future rent liability is a deposit. The implications being that;
'Arguably any money from the tenant held by the landlord over and above the immediate payments of rent due is construable as a deposit'.
The key here is that if rent in advance of the LAST month is being held then it is considered a deposit and should be protected. This article from Ros/LAT refers to the 'first months rent taken' in the very first sentence.
The issue isn't about protecting Rent, it is about protecting money that is not rent but which is being called rent.
"Advanced rent" collected in case the tenant fails to pay the last month's rent is a deposit, Advanced rent to cover the rent due isn't a deposit.
@Ray Comer
'That is tantamount to them saying the legislation is hopelessly wrong and flies in the face of what the legislation actually says'
'No reasonable person would interpret S212 (8) as including rent as it would frustrate the other areas of the legislation'
Spot on and I absolutely agree sir!
Robert May wrote "With regards to advance rent I took this up directly with DCLG in January 2011 who confirmed that rent taken in advance is a Deposit, it took over a week for them to confirm to me that any sum that could or should be returned to a tenant is a deposit"
That is tantamount to them saying the legislation is hopelessly wrong and flies in the face of what the legislation actually says. No reasonable person would interpret S212 (8) as including rent as it would frustrate the other areas of the legislation; the deposit either needs to be protected at the start of the tenancy or it doesn't, they cannot have it both ways. To take the rent out of the deposit would mean unprotecting it and then reprotecting it. And as I said before, what happens when the students decide not to allow the deposit to be unprotected??
If any tenant started action against me for not protecting their rent as a deposit I'd take my chances with a judge; at the end of the day it is the judiciary who interpret the law not government departments.
It doesn't suprise me that DCLG are confused about this. It was poorly written legilsation from the start.
Robert May wrote "The issue is that some agents are taking Advanced rents in lieu of a deposit in order to circumvent legislation"
This is a different issue; if thats the case it wasn't rent at all but a deposit and should be treated as such.
I certainly wouldn't be looking to NFoPP, NALS or Sage agent for guidance at the moment; its DCLG who need to sort this out as it doesn't just impact student lets but ALL lets where rent might be collected in advance of the start date.
Anyhow this should not be down to a few folk on a forum to discuss, proper guidance ought to be coming from NFoPP, NALS and now SAFEagent, all of whom bang on about CMP, yet none of whom appear to have a committee or person responsible for Client monies.
Jimmy, in his first insightful post of yesterday, pointed out that most people broke the law on the way to work, he is right, however the 3 points and Sixty quid fine still stand even if think your version of the law is slightly different to the actual law.
The great thing about all this? It is apparent that no-one understands the legislation and no-one is policing it. If you haven't been caught in the last 5 years what are the chances of ever being caught?
The one thing that is certain, irrespective of TDS, any agent treating Foreign Students any differently to British students is in breach of the Race Relations Act. Jimmy probably doesn’t think that is important either!
The foundation and spirit of the Act is 'intent'. If you intend to hold money as security then it's a deposit. If you don't then it's not. Rent in advance of a future due date is not held as security but held in abeyance to be paid on the said due date to the landlord.
Remember, the deposit always belongs to the tenant but rent always belongs to the landlord.
If it's not then......... Exactly the point and the reason that clarification is required.
The trouble is where is the clarification going to come from? If it doesn't come from NFoPP, NALS or SAFEAgent and come quickly it could be well be handed down as case law which is going to be a little too late for at least one Agent.
Where???? you seem fairly certain of your ground, care to volunteer?
Oh dear. You are all so wrapped up in the definitions of legislations, that you you think you actually have a point. You misguided fools.
No such thing as an applicant deposit and certainly the Housing Act 2004 which both Ros and Industry Observer rely on and indeed specifically quote refers to TENANT DEPOSIT.
Think about it, If the tenancy is created then the Act applies and I stand by what I said. If it's not then.........
So in your opinion the tenancy is effectively created 10 months in advance?
The case being discussed is applicant deposits not Tenancy deposits, If the Applicant fails to become a Tenant then the contract will be frustrated and monies paid can reasonably expect to be repaid to the applicant
Perhaps you are suggesting that all Students will pass their first year exams, will all go onto the second year and will take up the tenancies they have put their name against.
With regards to advance rent I took this up directly with DCLG in January 2011 who confirmed that rent taken in advance is a Deposit, it took over a week for them to confirm to me that any sum that could or should be returned to a tenant is a deposit. The issue is that some agents are taking Advanced rents in lieu of a deposit in order to circumvent legislation. With large sums held outside the deposit schemes those Tenant’s money become as protected as it was prior to April 2007 i.e. not.
My posts were not a prophesy of doom and woe and I would not have said IO’s were either, it was advice to agents in Oxford that before ending up in a professionally embarrassing situation with the students they would best make sure that they are operating within the legislation as it is being interpreted today. My opinion based on what I have been told by DCLG is that the “consideration” you are taking is a deposit and should be treated as such.
The only solution is to comply with the law until the law is changed. Take advice from NFoPP if you are a member, get advice from Safe Agent or Nals but do not have a client account that contains un-registered Deposits.
As for it being easy to sit on the outside, it isn’t. Last week I was ostracised as a delusional crackhead with a professional agenda for trying to make Agents aware that all is not well with the Technology Agents use or the guidelines that are supposedly laid down for them to follow. Even with the legislation laid out before everyone to read (probably the first time many will have ever seen a copy of the Housing Act) There is ambiguity over who is the Appropriate National Authority and when a deposit is a deposit and when it is not. 5 years after this legislation came into being it seems a bit disturbing that we all think we are doing the right thing but as the Oxford scheme shows no-one is really sure.
I challenged DCLG at the time of the legislation, unfortunately they simply ploughed their own furrow and hurried out a law which is ambiguous enough to cause some unfortunate Agent to be on the wrong side of the law. Hopefully sensible Agents will take professional advice and ensure it is not them.
'Industry Observer' says 'In very simple terms any money held in contemplation of the discharge of a future obligation by the tenant the HA 2004 says is a deposit.'
'Ros says' 'This is because the 2004 Housing Act says that all and any money paid in advance of a tenancy and which could or should be returned to the tenant is defined as a deposit.'
The Housing Act 2004 says '“tenancy deposit”, in relation to a shorthold tenancy, means any money intended to be held (by the landlord or otherwise) 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. (So unpaid rent, court/eviction costs, outstanding utilities, breakages etc.)
Not actually what those guys said?
Money held as security is a deposit, its done so to ensure the tenant performs and adheres to any obligation and discharge of any liability arising from the tenancy and to compensate if they don't. Rent in advance is not intended to be held for these same reasons but to be paid to a landlord for use of a dwelling. Rent whether in advance or not does not compensate for breach of tenancy.
The Act isn't a catch all, it specifically lays out its definition of a deposit.
I do think though that If the tenant has paid a deposit and rent in advance of a tenancy, to commence several months in the future; the deposit should be protected and the rent forwarded to the landlord.
OK Robert and Industry Observer............ What is the answer? It is easy to sit on the outside prophesying doom and woe on all around you, but what is the real solutions to real issues? An agent managing say 150 student properties on 12 month tenancies all determined between early July and Late August, has clients who need security that their property will be occupied for the following year, and has tenants who disappear to the four corners of the globe as soon as they are not at University, and who all want the best possible property in terms of location, rent and standard of finish.
How does the agent provide a safe service to both; that meets their needs and protects both parties?
I have seen some awful practice over the 11 years that I have been letting and managing student property, including gazumping, the letting of property without instruction, the multiple letting of rooms (that did not even belong to the "landlord") but I would like to know what the answer is..........?
We take "consideration" a small sum equating to half a month’s rent, at the signing of an agreement, (some point between Christmas and Easter) the monies are held in a designated client account and the tenants can instruct us what to do with it when they pay their deposit and first period of rent. Even if applicants have indicated they would like the property at the end of November. This seems fair in terms of natural justice in as much as both parties are able to feel confident that the other is committed to the agreement. We give them six weeks, (during which time we take the property off the market), between expressing an interest in the property and signing, in order that they can go through the draft agreement with their guarantors and or parents. We then ask the tenants to pay the deposit and first period of rent before they leave university for the summer; we have found in the past that if we do not do this, the tenancy starts, whilst half of the tenants are in Northern Laos, and the other half do not have the wherewithal to pay the whole of the deposit and first period of rent but still want to move in!
Can you suggest a better way of doing it?
Before I get slaughtered, I should add that I think the whole practise of taking money so far in advance for student lets needs looking at, I just disagree that rent taken in advance is the same as a deposit taken in advance.
I'm sceptical about the use of S212-215 to declare that RENT paid in advance of the tenancy starting should be treated as a deposit. I don't think that was what was intended at all and I see nothing in there to define rent paid in advance as a tenancy deposit.
The law already allows for rent to be returned in the event a tenancy agreement is frustrated by the landlord before the start date so what is to be gained?
The deposit is defined as money held for:
(a) the performance of any obligations of the tenant, or
(b) the discharge of any liability of his, - rent doesn't fit this box at all imo.
If this was correct, where would one draw the line? six months in advance, a week in advance?
What if the tenant decides not to agree to the 'deposit' being unprotected at the start of the tenancy?
tenancy agreements would need to change to reflect that deposits COULD be used as rent which would make a mockery of legislation that is already shakey at best.
Discuss
@ Bamber
"Your starter for 10
Who is "The appropriate national authority"?"
That would be the Department for Communities and Local Government
Your starter for 10
Who is "The appropriate national authority"?
Where can I as an ordinary agent look to find this stuff out for myself before, as the article so comfortingly describes, I break the law?
http://www.legislation.gov.uk/ukpga/2004/34/section/212
read all sections to 215 and Schedule 10
Dear Hardly Jimmy
Not so! Yes I have posted under my real name but I would challenge you to find my business and what I am doing now. (I am not a shop fitter or in financial services and don't have an IT business in Surrey) As for industry Observer who he or she is I have no idea, I do know he or she is worth listening to on this matter.
I am only involved with this because of my post on the Charles Lawson story..
As I pointed out then a lot of Agents are sleep walking into problems because of their over reliance on Technology, and the training/support given on that technology. This was an example that came up which demonstrates that point.
It is a funny old world when an industry will happily turn on the messenger rather than listen to a message they would rather not hear.
PS I am not an IT expert (per Ros's description) and have never claimed to be one but 16 years of not getting myself or my clients sued means I was doing something right.
Best regards
Robert
You are pretty much breaking the law if you turn up for work. If you drove to work, you probably broke a law before you even got there. You really are stupid.
I think with 95% of agents, as Industry Observer notes, ignoring legislation designed to protect all tenants, not just students, it would be difficult to claim we are subservient.
Looking back through my files I can not find anything from NFoPP that explains the fine detail that Robert and Industry Observer are getting so worked up about. Where can I as an ordinary agent look to find this stuff out for myself before, as the article so comfortingly describes, I break the law? I want to check if they are right, the Direct.gov.uk site is unhelpfully vague>
Maybe Robert May and Industry Observer are simply trying to drum up business for their consultancies?
"Localism Act". We have reached a stage where we allow our government to just make stuff up. I used to think Gordon Brown was the driving force behind invent a law to make a tax, but clearly not. We also have £5000 epc fines coming out in April. Are we really all that dim and subservient? Obviously.