Readers may be interested in hearing about the solution to a problem experienced by a Landlord Law member, Roger, who lets to students.
Roger uses a Shorthold Tenancy Agreement (four students per house) and formerly obtained a Rent Guarantee from the parents. The procedure then (i.e. before the introduction of the tenancy deposit protection schemes) was that he would take a deposit (so that they did not go elsewhere and not tell him, which has happened) and wait for the parents to return the Guarantee (which can take weeks). However he was concerned about this procedure after the introduction of the tenancy deposit scheme and whether it would bring into play the requirement to protect the deposit within two weeks of payment.
Roger needs to ensure that the 4 students who have confirmed that they wish to rent a house do not change there minds while he is waiting for their parents to return the signed Rent Guarantee. This is critical because the university issue their list of houses available early in February and if landlords do not rent their house soon after this date it can be very difficult finding tenants.
Roger spoke to an advisor at My Deposits who confirmed that it would be acceptable to take a sum from the tenants, e.g. equating to the first months rent, inform them that this is a ‘non returnable holding sum’, and not take the deposit until the parents return the Guarantee. At this point the Tenancy Agreement can be finalised with the holding sum covering the first month’s rent, the further sum paid at that time being used for the deposit.
My Deposits also confirmed via email that this procedure was appropriate. Their email stated:
“I can confirm this procedure as advised by my colleague is correct. When the monies paid by the tenants is classed as a ‘non refundable holding fee’ this would not require a protection with our scheme until the agreement is finalised and the monies is classed as the actual deposit for the AST agreement. You would then be able to proceed with your deposit protection with our scheme and provide the tenants with the prescribed information as required under the current legislation.”
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That sounds right. The sum in question is what should properly be called "earnest money" rather than a deposit and would not be a deposit within the meaning of the Housing ACt 2004.
Except of course any such document or receipt which purports to take any money from a prospective tenant as "non-refundable/non returnable" would be subject to stringent examination under the Unfair Terms in Consumer Contract Regulations and unless extremely carefully worded would without doubt be challengeable and potentially unenforceable under the Regs. People, even tenants, are entitled to change their minds (without incurring disproportionate penalties) before committing to a contract.
If a landlord (specialising in student lets) loses the opportunity to let to other student tenants, because he is reserving the property for tenant A, then it is only right that if Tenant A decides he no longer wants to rent the property, he should suffer some penalty.
If the landlord has lost the opportunity to let to students for that academnic year, his potential losses will be far more than the amount of the deposit.
I am a bit surprised at the suggestion that “Roger” couldn’t quickly find a suitable replacement student tenant because student A’s mother and father have died in a plane crash and so he wants to delay going to Uni for a year. Lets remember this is all a couple of weeks before the AST has been signed. I don’t know of any student town where demand for good quality student accommodation does not outstrip supply so your suggestion that Roger will miss out on income for the academic year cos he can’t let the room etc is a bit far fetched – so the potential for loss to Roger to which you refer is in fact likely to be minimal if not zero, rather than “far more than the amount of the deposit”. (I note the money is now being called a “deposit”)
An alternative scenario, lets assume that Roger decides that he wont wait for the student A guarantors to sign the form because he now wants to Let the room/property to his best mates son so tells Student A that the deal is off – on the basis that any contract (and lets not forget that there is a contract if money has exchanged hands as a consequence of an offer and acceptance no matter what you call the piece of paper) must be fair and balanced (e.g. it works both ways in similar circumstances) and using your principle which applied to student A previously when he pulled out then Roger will now similarly presumably be liable to pay costs/losses of student A finding new accommodation – oh he cant because there is not enough property – so he has to stay in a hotel for the academic year – going to cost Roger a lot in compensation for pulling out!
As I said, any document which purports to blanket claim that pre tenancy money is unilaterally “non-refundable” must be very carefully worded so as not to fall foul of the various and extensive parameters of the UTCCRs.