Are letting agents nervous about taking reservation fees?
David Lawrenson, buy-to-let author, consultant and a landlord, reckons they are.
Reservation fees, usually amounting to two to three weeks of rent, are taken from new tenants while waiting for a rental property to become vacant. They are intended to ensure the new tenant is not ‘flaky’ and the would-be tenant will lose the money should they fail to take up the tenancy – compensation for landlords faced with a void period.
It seems reasonable to Lawrenson, although he does point out that reservation agreements should also say that (1) in the unusual event that the existing tenant does not vacate and the incoming tenant therefore cannot take up the tenancy, , then the incoming tenant will get their reservation fee back in full, and (2) providing the incoming tenant takes up the tenancy, the reservation fee is then deducted from the first month’s rent on move-in date, leaving just the balance to pay.
However, he says some letting agents are very reluctant to take reservation fees at all – even though looking after the landlord should be the agent’s priority.
ARLA told him: “ARLA advises their members to make sure that the potential tenant is fully aware of the obligations and liability to such a penalty, and along with all other fees it is clear and transparent. They also remind their members of the risk of executing a tenancy if there is any doubt that the existing tenant does not move out.”
If agents are as reluctant to take reservation fees as Lawrenson claims, could it be for legitimate reasons?
First, is there a risk that a reservation fee could count as a tenancy deposit? Lawrenson says not, but according to the Tenancy Deposit Service, “a deposit is money held as security against a tenant’s obligations in connection with the tenancy”.
Secondly, with letting agents’ fees charged to tenants already under intense scrutiny (and banned in Scotland, whether, incidentally, charged by landlords or agents), can anyone blame agents for wanting to steer clear?
However, it’s a legitimate talking point, and we would be interested in your views.
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Comments
These reservations can be a heavy weight for tenants to bear.
I have put a reservation deposit on a flat last week, and they still haven't sent me a confirmation to let, nor given me any update about what was going on.
I have one week left to move, and I cannot look for another place because they are holding my reservation deposit.
Is there any way to claim this reservation deposit back after a certain time?
I have posted the same question on this forum:
http://forums.moneysavingexpert.com/showthread.php?t=4765366
Ok so lets re-cap, you believe that holding deposit/reservation fees are not deposits when treated ‘under’ a tenancy since that tenancy does not exist but that it can be treated as such ‘in connection’ with a tenancy because a tenancy does exist. You rely on s45 by interpreting ‘agreement’ as intent in the sense of an agreement to take up a tenancy.
So lets follow your train of thought that a verbal agreement (intent) to take up a tenancy is the same as an actual written tenancy. That would mean the moment a holding deposit/reservation fee is accepted a verbal agreement has been created and so has a tenancy. But that would also create the tenants rights, namely that the tenant has an immediate right to possess the property, sec (2) of your beloved s45. This in effect would defeat the requirement for references and we would therefore have to have hand over the keys there and then. To deny the tenant possession of the property and therefore occupation of the property would mean that no tenancy has been created because as you kindly pointed out in an earlier post, a tenancy cannot exist before possession is granted LOPA 1925 sec 54, and so we’re back to where we started. Please tell me you see the flaw here.
Rather than relying on ‘experts’ if you read s45 a little further yourself then you will see the context that it mentions in the very first sentence is explained in sec (2),
‘ under the terms of any lease, agreement or other DOCUMENT’
You can see these are a collection of adjectives that refer to physical paperwork and I don’t understand how you fail to embrace this?
Your crusade to prove ‘intent’ has had you back and forth, first it’s a deposit then its not. Quoting s45 then conceding it’s irrelevant. Ignore s45 and forget you ever mentioned it then here we are again. One ‘expert’ misquotes and the other just analyses syntax.
Take a step back and look at it with fresh eyes IO. Follow the natural progression of all the laws of housing and they will lead you to a logical destination. It’s a common sense conclusion that your theory lacks, remember No tenancy – No deposit.
I have the clarification on s45 if you are interested. It is complicated and will take some posting and explains and defeats your interpretation, but I will only post it if you respond to this post, which time wise is probably unlikely.
'Normal' would be in terms of a modest fee, basically something sufficient to cover the costs that as you rightly say can be deducted before any such fee, whether in the end defined as a deposit or not, is returned.
What is the point of taking say £500 - and it isn't me that has referred to taking an amount equivalent to three weeks rent - if you can only lawfully hold onto say £100 of it?
I don't follow this logic from you at all
"The obvious intention is for the tenancy to succeed so logically the purpose of the fee can't be compensation."
It isn't me that introduced the idea of compensation into this thread or the purpose of the (therefore) modest holding fee.
"The compensation can only arise if the failure to proceed with the tenancy is solely due to the fault of the prospective tenant such as omission of salient information or wilful attempts to defraud. "
Agreed - but others have suggested that the money can be retained by the Landlord if the tenant simply changes their mind, or has put a fee down on a few properties (hence the suggested larger amount or retaining it all to discourage such tactics).
I won't debate the matter any more as there is simply no point as neither of us can prove our position definitively, it ia all a matter of interpretation no matter how well (in your case) or badly (you seem to think in mine).
You are convinced I am wrong and you are right. I may not be right but until it is better clarified AT LAW I simply say there is a risk - we all know how daft Judges can be!!
But then given your plethora of names, if you are one and the same, how do I know it's you?!!
I thought we were done fella?
'If the amount held is determined to be beyond a normal 'deposit' in the sense of a reservation fee, then that begs questions as to why take so much in the first place'
Purely for my edification, please define normal and then please qualify that persons right to define it? While were here, please clarify your reasoning for begging such questions as to 'why take so much in the first place'?
Come on IO don't just plagiarise, give us YOUR opinion on this ARLA & SAFE member's point so we can understand how YOU interpret it.
'If the purpose it to compensate the landlord in some way'
The purpose of a reservation fee, holding deposit or whatever you wish to call it is to reserve a tenancy/property. The property is withdrawn from the market and held in abeyance.
The question of compensation only arises should that tenancy fail, a conditional consequence. Stay with me IO; The obvious intention is for the tenancy to succeed so logically the purpose of the fee can't be compensation. In such a scenario REASONABLE costs can be awarded to the landlord and agent as compensation for lost advertising/marketing and any work that the agent has undertaken - not for lost rent.
The compensation can only arise if the failure to proceed with the tenancy is solely due to the fault of the prospective tenant such as omission of salient information or wilful attempts to defraud.
A clearly worded document for the prospective tenant to sign and retain from the outset should explain this and also that in all other circumstances of failure, the monies are refunded in full. The refund bit is important as it establishes the 'purpose' of the fee is NOT compensation.
I fail to see how this extract supports your claim that it's a deposit? What I'm reading is the 'murky waters' of application fees and deductions. It would be fab if you could actually point to the specific part that does.
I'm not trying to be right but I do think you're wrong. I've argued based on logic, common sense and above all, the law. You've employed neither and instead rely on hearsay.
All I've done is question your ideal and you've failed to back it up. It wasn't me who quoted s45 then later admitted it's irrelevant, and it's not me who has based my whole frame of reference on a magazine article.
I have to admire your doggedness though, even in the face of your own overwhelming contradiction which at times has been maddening...
'the only way Govt can clarify is to amend or pass fresh legislation'
Sounds silly when you see it like this doesn't it? The pure insanity that a government would pass legislation, then have to pass new legislation just to clarify it, and around and around we go.
To accidentally fall on your sword in quoting Lawrence,
'and (2) providing the incoming tenant takes up the tenancy'
OK, stop and read that again, TAKES UP THE TENANCY. Please tell me you see that. Please tell me you see this statement establishes the payment was pre-tenancy. Please tell me you can now follow the logical progression of the law in that the absence of a tenancy precludes any obligation of protection as the payment cannot be determined a deposit. NO tenancy - NO deposit!
'the reservation fee is then deducted from the first month’s rent on move-in date, leaving just the balance to pay'
Agreed because only once the tenant has indeed taken up the tenancy can you treat his payment as rent, rent in advance or deposit. The clue is in the word 'reservation', the act of reserving, something that is put on hold for a future action. It's right there IO, staring you in the face in a passage you 'cut & paste' yourself.
Going to take your advice and leave it here...
Forget s45 comments I should never have introduced the comment is has sidetracked the discussion which is about reservation or holding fees, though I am further investigating s45 and "intent".
The point I was trying to make is that it may not make any difference what you call the money, it is the purpose it is helfd for, what happens to it eventually and I would also suggest, the amount. That is the basis on whether or not money was in fact a deposit and should have been protected, no matter what you call it.
Here ARLA & SAFE member makes an impportant point.
If the amount held is determined to be beyond a normal 'deposit' in the sense of a reservation fee, then that begs questions as to why take so much in the first place. If the purpose it to compensate the landlord in some way (for lost rent etc) then you start sailing into very murky waters, with the OFT having a lot to say on application fees and deductions from them on failed applications, never mind larger amounts as reservation fees.
If the whole amount is to be refunded even if the tenant changes their mind, what is the point of taking more than say a week?
The completely separate agreement on the reservation fee may just stack up, though I can see difficulties unless it is very carefully constructed indeed, all the money refunded if the tenant drops out/fails referencing, is then offset against rent (fatal) or even makes reference to the amount taken somehow being expressed as a %age of rent.
The one area where I do see a use for such fees is in preventing multiple applications from tenants - but then tht would involve multiple application fees and if they are £150+ a pop I can't see many tenants doing that
@FT
Actually you are right, you must be, you shout loudest so that has to be it.
The Government's own clarification? Don't you get it, the only way Govt can clarify is to amend or pass fresh legislation or somehoe otherwise Statute already on the Books. As they have done in Scotland.
Only a Court can confirm
Anyway you are obviously right and you obviously do not misunderstand when you seem to think it is OK to take money you say ios a fee, not a deposit and not rent in advance as otherwise of course it would be a deposit (I assume even you acknowledge that?)
So you don't misunderstand that as Mr Lawrenson stated
"and (2) providing the incoming tenant takes up the tenancy, the reservation fee is then deducted from the first month’s rent on move-in date, leaving just the balance to pay."
that the payment then being treated as rent would also have been a rental payment in advance?
That's OK then but as I say you are obviously right in all matters so we'll leave it there
- 'you trying to tell me that fee wouldn't then be rent in advance and treated as a deposit'
Seriously you're making my head hurt! Look, in order for the fee to become 'rent in advance' and therefore be treated as a 'deposit', the PROSPECTIVE tenant would need to become an ACTUAL tenant and not before; that is, your scenario could only apply ONCE THEY SIGN THE TENANCY AGREEMENT!!!!!
Jeez, which part of the governments own clarification did you not understand??????? These payments are pre-tenancy!!!!!
- 's45 may not ber relevant, I believe that it is as it deals with the intention to enter into a tenancy'
Once again, for the love of god please show me specifically where???? Oh let me read that again 's45 may not be relevant'... so you now concede it may not be relevant (even though you quoted it to others) but you STILL BELIEVE IT IS, yet more oxymoron. All this based on some article you recall you read some time ago but you can't recall it's title or author....an 'almost certain' provenance.
@NaF
'Anyway Mr Lawrenson I can ASSURE you that such a move/transaction would DEFINITELY have made the fee a deposit as it was CLEARLY advance rent'
You can't preach with such presumed authority and righteousness, declaring that you can 'assure' then quickly disclaim it with a waiver
Read again the context in which I made the statement first sentence above. It was in the context of the reservation fee then being converted and treated as rent - you trying to tell me that fee wouldn't then be rent in advance and treated as a deposit?
s45 may not ber relevant, I believe that it is as it deals with the intention to enter into a tenancy. I have seen legal opinion on this far better qualified than me, but damned if I can find it at the moment. That comment confirmed that the previously much loved pre conract contract approach was now defunct courtesy of the TDP legislation
'These payments, NO MATTER WHAT YOU CALL THEM, are under TDP legislation, almost certainly deposits'
This comment is meant to embrace all the creativity of agents no matter what they call actual deposits, rent in advance or whatever - not just reservation fees.
Industry Observer - 'As with everyone else NO-ONE is in a position to pronounce on this, NOT ME, not Mr Lawrenson, ARLA, TPO, TDS or anyone.
Industry Observer - 'Anyway Mr Lawrenson I can ASSURE you that such a move/transaction would DEFINITELY have made the fee a deposit as it was CLEARLY advance rent'
You can't preach with such presumed authority and righteousness, declaring that you can 'assure' then quickly disclaim it with a waiver.
Industry Observer - 'These payments, NO MATTER WHAT YOU CALL THEM, are under TDP legislation, almost certainly deposits'
Yet another statement bounding with determination that ends with a simpering love of oxymoron, just how do you make something almost certainly?
Industry Observer - 'Only a Court can decide whether or not money paid and called something else was in fact rent and therefore should have been a deposit'
A factual comment if a little weak and akin to saying that even though the law says you can't steal, until a court says it then it's a grey area. I guess we should wait for the courts to judgement everything, after all why take the risk indeed...
I've been down this road with you before IO and clearly you believe you are correct, but I disagree. You rely on s45 Housing Act 1988 but this does not deal with 'intent' to create a tenancy, s45 is the interpretation of Part 1 that deals with ACTUAL tenancies so I would ask you to point out specifically where you believe it supports your argument.
I believe that Lawrenson is correct and TDS are wrong and so does the government who provide the following clarification on their own website. (https://www.gov.uk/tenancy-deposit-protection/overview)
'Your landlord doesn’t have to protect a holding deposit (money you pay to ‘hold’ a property before an agreement is signed). However, once you BECOME a tenant, the holding deposit becomes a deposit, which they must protect'
Bear in mind the legislation actually states,
"“deposit” means a transfer of property 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,"
The TDS paraphrased this to,
“a deposit is money held as security against a tenant’s obligations in connection with the tenancy” (spot the difference Hawkeye)
@ Hawkeye
I've seen you trot out your interpretation as often as I have mine!! Main difference is mine comes with no risk whatsoever, how about yours.
I'd like to see where your middle paragraph is stated as Law as opposed to just your interpretation of English.
@Added on
See s45 Housing Act 1988 if you want a legal definition of intent to create a tenancy is. Frankly I'd say paying some sort of fee to reserve a property is pretty clear intent wouldn't you - even if it is refundable.
“a deposit is money held as security against a tenant’s obligations in connection with the tenancy”.
It clearly says "in connection with" but is not noted as "part of" either the rent or deposit. It only becomes one or the other when the tenancy starts. Up till then it is in no mans land and if noted as non refundable if the contract is not signed then it need not be put in a protected scheme in favour of those giving but could in theory be put in a protected scheme in favour of the landlord!
This could be fun you know.
In my opinion, a reservation fee is not a tenancy deposit and I don't think this was ever the intention of the legislation.
The Housing Act states that:
"“deposit” means a transfer of property 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,"
Well as far as I'm aware you only become a 'tenant' once you have agreed to the terms of a tenancy (either verbally or in writing). So a tenancy deposit taken in advance of a tenancy and intended to be held as security for tenant's obligations under the agreement, is indeed to be treated as a deposit as intended by the legislation.
However, if an agent or landlord decides to ask for a separate reservation fee to take the property off the market and secure it for the PROSPECTIVE tenant for an agreed period while negotiaions are underway, then this is an entirely separate contract from the tenancy agreement and has it's own, completely separate terms and obligations.
"usually amounting to two to three weeks of rent"
Thats ridiculous. One week is ample - its a sign of good faith - not a bond.
Careful Paul avoid the D word at all costs.
These payments, no matter what you call them, are under TDP legislation, almost certainly deposits.
This bit is nice and confusing though:-
".....then the reservation fee will be returned, and that the reservation fee will be deducted from the first month’s rent."
If the fee is returned how is it subsequently deducted from the first month's rent when the tenancy doesn't complete.
Anyway Mr Lawrenson I can assure you that such a move/transaction would definitely have made the fee a deposit as it was clearly advance rent.
As with everyone else no-one is in a position to pronounce on this, not me, not Mr Lawrenson, ARLA, TPO, TDS or anyone. Only a Court can decide whether or not money paid and called something else was in fact rent and therefore should have been a deposit.
Trouble is post Localism Act 2011 it will almost certainly be too late to do anything about it and the offence will have been committed, just as it will be around now on future student tenancies where money changes hands no matter what you call it
I ask my usual question - why take the risk no matter how small?
How can you not take a holding deposit, that's just ridiculous!
I never thought about the Scottish law re-inforcement in that way. What a nightmare! Yes, as there's no loss by the tenant, why wouldn't they apply for 2 or 3 properties to cover themselves? But what a waste of time and money for the agent & landlord. The only thing to do is increase rents & landlord fees to cover this time & money? So in the end, against Shelter's wishes, the tenant still doesn't benefit from not having to pay admin fees...
Since the clarification of law in Scotland which resulted in the abolition of tenant fees, we have proposed tenancies "falling down" on a dailly basis as we have no mechanism to lock a proposed tenant into the deal.
Tenants are applying for multiple properties as there is no cost implication and I have had a tenant applying for a property while admitting that she was luke warm on it but wanted to reserve it as a "fall back".
Agents are losing face with landlords who dont realise the implications of the legislation.