Landlords are breaking the law

Too many landlords are holding onto deposits illegally - tenants, here's how to protect yourselves from foul play.

Landlords are sometimes getting it wrong when it comes to the issue of holding deposits, according to the Office of Fair Trading.

When a prospective tenant makes an offer in principle to rent a property, he or she will usually pay a holding deposit of perhaps one third or one half of a month's rent. If the prospective tenant finds another property that he prefers before the contract is signed, he will have to forfeit the holding deposit to take the other property.

The landlord or agent can also reject a prospective tenant and can justify keeping the holding deposit or part of it if the tenant provides inaccurate information about himself.

Where it can go wrong

That's how it's supposed to work and presumably it normally does, but it does sometimes go wrong. Some landlords are successfully withholding deposits on unacceptable grounds. Here are examples of unacceptable grounds for landlords or agents to keep holding deposits:

• When the prospective tenant fails a credit check.
• When the prospective tenant fails a reference check.
• When the landlord or agent decides not to go ahead for any reason – except if a tenant has provided inaccurate information about themselves, when it can be justifiable.
• If the landlord dithers over agreeing a moving-in date and then the tenant decides to take another property.
• If the landlord rejects an offer of rent and then changes his mind, but the tenant then decides not to go ahead.

Here's what the Office of Fair Trading has to say about holding deposits:

“Where the tenancy does not go ahead because the landlord or agent decides not to proceed, whether this is on the basis of a failed reference check or not, then we take the view that they are not entitled to charge the tenant for the costs they have incurred because it is the landlord/agent who has breached the agreement, not the tenant. If a tenant puts down a holding deposit, provides accurate information about themselves and does not withdraw from the agreement, we see no justification for the landlord/agent seeking to keep any of the tenant's monies on the basis that the landlord/agent decides not to proceed with the tenancy .”

For a landlord it's simple, as you just need to follow those guidelines.

For a tenant the risks are greater, because it's the landlord who's holding your money. Hence, it makes sense for tenants to minimise their risks.

Guidance for tenants

Here are 16 ideas for tenants to limit their risks:

• Interview lots of estate agents and use the ones that seem nicest.
• Look for landlords/agents who are members of the Property Ombudsman Service, which could help you with disputes. Ensure they're in a tenancy deposit scheme.
• Provide accurate information about yourself.
• Don't let a great property beguile you into paying an overly-large holding deposit.
• Before paying a holding deposit, ensure that the landlord/agent understands that they're not allowed to withhold the holding deposit for any reason if they decide to reject you, unless perhaps they find that you've given inaccurate information. Get this in writing.
• Ask for a provisional moving-in date from the beginning and get written agreement that, if the landlord delays the moving-in date beyond an agreed date, you'll be allowed to withdraw and get your full holding deposit back.
• Legislation requires that tenants are allowed to read the full tenancy agreement before being asked for the holding deposit or any other financial commitment. When you're arranging to view a property, ask the agent or landlord to bring a copy of the tenancy agreement along. Find a quiet corner and read the agreement until you understand it. If you find small print hard, bring someone along for a second opinion. If you need more time, take it away and study it first.
• If a landlord rejects your rent offer, tell them that the the deal is therefore off and you expect them to return your holding deposit.
• Put all communication in writing as soon as possible, even if it's already been made verbally.
• To complain, write a letter explaining why you think you're being treated unfairly and what you'd like them to do about it.
• If agents who are members of the Property Ombudsman Service breach their obligations, remind them that their behaviour is against their code of conduct and that new legislation, the Consumer Protection from Unfair Trading Regulations, stipulates that all voluntary codes are legally binding.
• See if you have any legal-expenses policies. Often these are attached to home or car insurance. Typically you won't get legal representation in court, but they might offer a free arbitration service.
• If you don't have such a policy, you could try an Alternative Dispute Resolution service. The threat of referral to ADR may be enough to change a landlord's/agent's mind.
• You could try taking the landlord/agent to court. You can usually do it quite cheaply and relatively simply yourself using by applying to the HM Court Service online. Simply threatening court action may be enough.

Before taking legal action, familiarise yourself with The Unfair Terms in Consumer Contracts Regulations, the Consumers, Estate Agents and Redress Act and the Consumer Protection from Unfair Trading Regulations.

• In all your dealings, complaints and negotiations be polite, but firm.

The OFT has some guidance of its own on its website which is well worth a read (the link opens a PDF).

It's also likely under consumer law that, if you pull out, landlords should keep only enough of the holding deposit to cover their costs, but that's a topic for another time.

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