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Written by rosalind renshaw

Here is more on the ‘when is a deposit a deposit’ debate, courtesy of Eric Walker, managing director of Bushells in London.

Apropos of the changes to deposits which kick in on April 6, the Localism Act 2011 has this to say about deposits: “… in subsection (3) (landlord’s requirement to comply with initial requirements within 14 days of receipt of deposit) for ‘14’ substitute ’30’.”
 
“But when is a deposit a deposit? Many agents I know are confused,” says Walker.

He says that one agent advised a landlord that if the deposit was received a few days before the tenancy is executed, there is no tenancy and “monies are simply held to order until the tenancy is executed … if a tenancy hasn’t actually started, the funds are just money, and not a deposit until connected to the tenancy for which they provide security”.
 
Walker says this interpretation is wrong: “I have read the Act and confirmed with the TDS: they say the deposit must be registered with 30 days of it being received by the agent, regardless of whether a tenancy has been executed or not, UNLESS it is deemed a holding deposit.
 
“So, if an agent received the monies intended as a security deposit 29 days before the commencement of the tenancy and the landlord is dealing with the deposit registration under their own scheme, the monies must be paid over before the tenancy commences or the landlord won’t have time to register it.”

Comments

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    @ Industry Observer

    "If you really want to worry about something Robert in relation to the LA2011 just consider what this now means on Periocic tenancies, current and future."

    What about periodic tenancies? How will LA2011 affect these moving forward - I have not seen any articles relating to this specific subject.....have I missed something crucial?

    • 03 April 2012 03:48 AM
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    @ Robert May

    Robert I agree but the whole problem here and especially in this debate about is a deposit a deposit and above all whether advance rent payments especially from students (or anyone else for that meatter) need to be treated as a deposit is to me very simple.

    In 99% of cases they probably need to be. The only way to avoid that in a genuine advance rent payments scenario (as opposed to students paying £1000 or whatever in November and calling it advance rent) is to amend the wording in the agreement so the lumps sum covers the first 6 months and then the tenancy goes contractual periodic in month 7.

    This has been alluded to below and is a simple solution to that issue.

    But the whole problem with the deposit or not debate it that most commentators on it (especially agents and Landlords) are reading words they want to see, or attaching to them meanings they want them to have, or trying to interpret the Statute the way they think it should have been written, or how the drafter meant to write it, or how a Judge should/must/will apply it etc etc etc.

    All of which are VERY dangerous games until that first test case to clarify.

    Robert you ask an unfair task of all you and others refer to in clarifying this for the industry because for better or worse only one person can clarify what the Statute says and in only one Forum that then makes that clarification binding- and that is judge in Court and ideally a Court of Record i.e. Appeal Court, High Court or Supreme Court.

    Just look at section 45 of the 1988 Act and then the deposit definition in 2004 Act (and how often it appears there and in LA 2011 why is that then?) and then the amendments in LA 2011.

    All this seems crystal clear to me because the attempt is obviously being made not only to clarify what 2004 Act intended to say but also how it should be applied. The offences are now clear offences and no loophole escapes.

    If you were a Judge and had to decide whether money was a dposit or not and whether it should have been protected and a PIN issued you only have to ask yourself a couple of questions, read the Statute and then use common sense and determine what is reasonable.

    For example

    "Why has this money been taken from the prospective tenant so far in advance?"

    AND

    "In paying this money is the tenant entering into an agreement for a tenancy at some future date as per s45 of the 1988 Housing Act? Are they undertaking to make a commitment at some future date?"

    If the answer to the first question is "For the benefit of the Landlord to protect himself against...........something" and if the answer to the second questions is "Yes"

    and obviously those are the answers, then I rest my case.

    Unless 100% certain that money is not a deposit and that no dopey Judge could decide that it is protect it and serve a PIN.

    If you really want to worry about something Robert in relation to the LA2011 just consider what this now means on Periocic tenancies, current and future.

    • 02 April 2012 11:15 AM
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    It doesn't seem quite fair to me that some unfortunate Agent could carry the full financial and stress burden of providing the case law clarification of this now acknowledged shortfall in the legislation that an entire industry will subsequently benefit from.

    As IO says cross your fingers and hope it isn't you.

    • 01 April 2012 11:55 AM
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    When is a deposit a deposit (or not?!!)

    So many opinions so many views and none of them count in reality. Not trying to be rude but all that does matter is the opinion of a Court when the first case gets there.

    I am not going to wax lyrical on any of the comments below because some are right, some are wrong and all are obviously well meant. What matters here are two things:-

    1. What the Statute actually says
    2. When examined in Court in minute detail what the
    Court believes the money at dispute was actually
    intended for.

    The starting point for anyone relying on a tenancy not being a tenancy until some future date should be the oft overlooked s45 of the 1988 Act. Note there that an intention to enter into a tenancy – an “agreement” (which does not mean a tenancy agreement but an undertaking of future intent, creates a tenancy.

    Then examine the 2004 Act definition, which is repeated several times in LA 2011. Unless money is being taken in advance as secutrity to protect the Landlord against something, why on earth is it being taken at all. By definition any monies taken to focus the tenant’s mind and ensure he follows through in futute is security. You don’t need to be a Supreme Court Judge to hold that “reasonable” common sense opinion, surely?

    So any student paying £1000 now because of an intention, at this point in time, of entering into a tenancy at a future date in time is paying you a deposit NOW.
    Hawkeye I think it was who referred to how to handle actual true rent payments in advance with the special wording in the agreement and contractual periodic thereafter.

    But any talk about holding deposits or anything else not being a deposit is dangerous. Someone has posted that the real problem is the risk and they are dead right. The danger is that what you, TDS, David Smith, My|deposits, CLG, TPO, NAEA, ARLA, EW or Uncle Tom Cobbly thinks is somehow going to be definitive when push comes to shove.

    It isn’t – or at least it may not be.

    As that poster so rightly says the problem is the LA 2011 which shuts all doors and closes off all loopholes. So believe what you want to, interpret how best suits you and then cross your fingers because if you are wrong once 30 days has passed.........

    EW is right – take heed and proceed with caution. Until test cases have been heard protect even if you don’t think you need to. It is better than not protecting.

    • 31 March 2012 20:08 PM
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    If you get 6 or 12 months rent in advance deal with it as a period of x number of days as such with the rent payable for the period from a to b. You then do not have to place said advance payment in the deposit scheme.

    The problem is Hawkeye, if a tenant gives notice as they are entitled to do and you are holding their cash which has to be paid back to them, by giving notice they have retrospectively created a deposit (according to the CLG interpretation of their own legislation) and you have failed to protect their deposit giving rise to the possibility of a claim for 3 x the unprotected deposit. Work out the maths, costs and Aggro of a tenant that gives you notice 4 months into a tenancy on which they have paid 12 months up front and is demanding compo of 24 months rent from your landlord. You won't be best pleased nor will your landlord.

    Who has confirmed your opinion on advanced rents is correct?

    • 30 March 2012 09:06 AM
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    "Built around agreed standards developed by a broad range of stakeholders including practitioners and consumer groups the Blue Book is the definitive resource for anyone involved in sales and lettings of residential property"

    "The Blue Book is the Authoritative guide to the standards expected from a professional letting agent" (Ian Potter OM ARLA)

    It would seem that the Blue book is the bible for advice on this matter, who has read what it has to say?

    See section 10.5.3.2 then 11.9.2

    Since Day 1 of TDS 5 years ago there has been a problem with "Holding Deposits" which has not been clarified yet by anyone;
    If an applicant pays money to an Agent in respect of a tenancy there is a very confused line over whether the Agent has received a Deposit from a Tenant or a Holding (Deposit/ Fee/ Consideration) from an Applicant. The TDS claim the an agent can call the money whatever they like it is not a Deposit and does not need protecting. However If the applicant becomes a Tenant and takes up the tenancy on which they have paid money, who is going to decide whether the money was a Deposit that required protecting or a Holding (Deposit/ Fee/ Consideration) that doesn't?

    The Blue book is not clear on Holding (Deposit/ Fee/ Consideration) so I asked CLG for clarification, their advice is to treat any money that COULD or SHOULD be returned to a Tenant as a Deposit and protect it.

    I can see the situation where a Holding (Deposit/ Fee/ Consideration) is taken, but the Tenancy is created several weeks later; too late to register and protect it as a deposit within the allotted time frame that SOME tenants will be able to put a strong case that the Agent has failed to protect their deposit and should pay the price.

    It is no good everyone having their own interpretation of the legislation and it is no good everyone having their own interpretation of the case law that has followed in wake of less than detailed legislation.

    RICS, ARLA, NALS, SAFEAgent, NLA, RLA, DCLG, and every other Stake holder please talk to each other and provide once and for all guidance that will clarify for every Agent, Landlord, Applicant, and Tenant, where exactly is the line between a Deposit and a Holding (Deposit/ Fee/ Consideration) and at what point it should be protected.

    • 30 March 2012 08:46 AM
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    Oh, I almost forgot - My father in Law is a District Judge - he agrees that a) Deposit must be protected from receipt irrespective of when tenancy commences and b) HAWKEYE is patronising and sadly c) What do you expect from Estate Agents. (but with a smile)

    • 29 March 2012 21:56 PM
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    To patronising @ Hawkeye - " Easy isn't it? " - and then getting it wrong - how silly will you feel!

    Give it up guys - you cant tell some people anything. Let them get sued.

    • 29 March 2012 21:52 PM
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    EW is quite correct. In the money paid is for a security deposit it must be registered within 30 days of receipt irrespective of whether there is a tenancy or not.

    We sought Counsel's opinion and he was certain that this was how the Courts would interpret the Law as it expressly states 'receipt of deposit.' Any money paid as or intended to be a security deposit is just that.

    Respectfully, those who disagree are free to do so, BUT if a Landlord gets prosecuted, you may be sued. If a deposit is paid 4 weeks before the commencement date, and you pass funds to a Landlord who intends to hold or register the deposit, he wont have time and an offence will have been committed.

    Be very careful on this. The article above provides very sensible advice.

    • 29 March 2012 21:32 PM
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    Hawkeye: "The deposit is placed in said scheme once there is a tenancy and not before and is then protected throughout tenancy."

    You are incorrect. The deposit must be protected with 30 days of it being received. I was given the example of Student Lettings by the TDS where often monies are paid month in advance. They MUST be registered 30 days from receipt in accordance with the Law. TDS have confirmed this.

    • 29 March 2012 21:22 PM
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    Localism act? I thought this had something to do with League of Gentlemen!

    • 29 March 2012 19:13 PM
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    @ Hawkeye

    It is NOT the case that advance rental payments must be registered with the TDS. Rent is rent; paying for use of the property.
    Deposits are money held by the landlord/agent as security for the obligations and liabilities of the tenant in connection with the assured shorthold tenancy. This is what has to be protected. Read David Smith's article, which basically says that in light of UKHA vs Francis any money not intended to be repaid to the tenant is unlikely to be classed in law as a deposit.
    http://www.anthonygold.co.uk/site/ang_articles/tenancy_deposits_confusion_and_clarity


    @ray evans

    You're correct that the 30 day registration window begins when the deposit is received by the landlord/agent. If money is received before the agreement is signed then the 30 days doesn't start until the AST is created (no AST = no tenancy deposit in the eyes of the Housing Act). It's often the case that a holding deposit becomes a tenancy deposit on creation of the AST but it is worth confirming this in writing in the agreement.


    The Localism Act is not changing the definition of a deposit. If you are already registering deposits correctly the only change you will need to see is upated paperwork to incorporate the new time limit and penalties. See the TDS article - http://blog.tds.gb.com/blog/are-you-prepared-for-the-localism-act-checklist-for-members/

    • 29 March 2012 16:27 PM
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    @Hawkeye on 2012-03-29 13:03:29

    "The deposit is placed in said scheme once there is a tenancy and not before....."

    Really? I believe the clock starts as soon as the agent or landlord actually receives the security deposit?

    • 29 March 2012 14:36 PM
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    Oh my god. What are you lot bleating on about. If you get 6 or 12 months rent in advance deal with it as a period of x number of days as such with the rent payable for the period from a to b. You then do not have to place said advance payment in the deposit scheme.

    If however you show the period as 6 or 12 months at a rental of x per month then any advance payments qualify for inclusion in the deposit scheme.You then have the pleasure of complying with legislation and then getting the tenant to release each month the said monthly payment each and every month. Tenant not happy, rent is late so landlord not happy, your commission not paid so you are unhappy. Result: everyone peed off.

    Get the wording right then any compliance officer who calls in has nil to follow through so he also goes away peed off that he did not catch you out.

    The deposit is placed in said scheme once there is a tenancy and not before and is then protected throughout tenancy. Easy isn't it?

    Second and subsequent periods the deposit is shown as previously paid - job done.

    Now you can all get back to work!

    • 29 March 2012 13:03 PM
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    How is it confusing? Presumably they have invoiced the tenant for the funds prior to receipt? the invoice should state clearly what the payments are for i.e. security deposit, advance rent, admin fee etc. Are agents really confusing security deposits with a generic 'deposit' of funds?

    • 29 March 2012 12:28 PM
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    @EW on 2012-03-29 09:23:09

    Thank you for your post.. I understand that you consider my interpretation of the two situations is accurate and situation 2 is a deposit.

    • 29 March 2012 10:02 AM
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    Ray - in my opinion - The tenancy agreement will detail the money held as a security deposit. It is this amount which must be registered. Advance rental payments are excluded howsoever paid.

    • 29 March 2012 09:23 AM
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    Thoughts on a recent query....

    1. Money received, in addition to the "Security Deposit" - i.e. say six monthly rental periods - is 'advance rent' with tenants authority in the agreement for to be used as it becomes due - is not a deposit and does not need to be registered as such?

    2. Same amount of money received, in addition to the "Security Deposit" - i.e. say six monthly rental periods - to be specifically held with tenants authority in the agreement for it ONLY to be used in case they default on the monthly rent - is a deposit and must be registered and normal procedures followed to actually use it?

    Is this correct?

    • 29 March 2012 09:03 AM
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    Whilst I am grateful to EW for the very clear opinion, I ask this: Why is not on ARLA website.

    The news page doesnt mention it, the Information page has a 'landlords' optio with ONE article "Why Should A Landlord Or Tenant Seek Out An ARLA Member?" And the Deposit Protection Page lists 3 TDS schemes - under that page, the heading 'Procedures' omits to mention deposits in any meaningful way. I could not find a thing under the members only section.

    This really isn't good enough.

    • 29 March 2012 08:45 AM
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    Saw this on Twitter. I asked 2 lawyers about this and they said 'ask the TDS' - good advice.

    • 29 March 2012 08:37 AM
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    Excellent - we were talking about this yesterday and someone said that the deposit couldnt be a deposit if the tenancy hadnt started. The guidance from TDS isnt that clear so this is very useful advice.

    • 29 March 2012 08:34 AM
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    It would have been good to have been given such clarity by my bloody ARLA membership. Cheers.

    • 29 March 2012 07:58 AM
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