Agents who fear that the tenancy fees ban could result in tenants making multiple applications have been warned that exactly this is happening in Scotland.
EYE has been told by a property management firm that tenants are paying holding deposits on several properties at once. They do not stand to forfeit the money if they decide not to go ahead with the tenancy.
The practice by Scottish agents is taking place despite the fact that taking holding deposits is illegal.
However, the generally accepted wisdom in Scotland is that taking holding deposits is legal – but not returning them is illegal. If a landlord or agent does not return the holding deposit at the start of the tenancy or if the person who has paid the money decides not to go ahead with the tenancy, it becomes an illegal premium.
Citizens Advice Scotland advises tenants: “A private landlord or letting agency might ask for a deposit before you sign a tenancy agreement. It’s sometimes called ‘key money’ or a ‘holding deposit’.
“If the landlord doesn’t refund this deposit at the start of the tenancy or if you decide not to take the tenancy it becomes an illegal fee, also known as a premium.”
Shelter Scotland also told us: “It [holding deposits] would be unlawful if the holding fee/holding deposit was non-refundable if the tenancy didn’t go ahead.
“Many landlords/agencies will ask for this and then when the tenancy begins this will become the tenancy deposit which will be protected in a tenancy deposit scheme. The tenant is under no obligation to pay the holding deposit but may then not get the property.”
The property management firm Apropos by DJ Alexander says that it is “standard practice” in Scotland for agents to ask for a holding deposit, with tenants in Scotland now placing deposits on several properties with different agents.
The firm says that this is a “problematic unintended consequence” of the fees ban.
Joint managing director David Alexander said that tenants withdraw interest in all but one of the properties within a few weeks, and then ask for – and get – their deposits back.
He said: “This results in lost revenue for the landlord and agent, and considerable administrative issues due to the need to remarket one or more properties.
“I don’t believe that tenants are deliberately taking an interest in multiple properties for any reason other than they are looking at a specific area, see a further property, and keep their interest in the original property live until they have secured a better place.
“The result, however, is that many properties are being taken off the market for a few weeks, then bounced back on once the holding deposit is withdrawn.
“Obviously, this causes more work, but of greater concern is that it loses income on the property.”
He warned that the same scenario could be about to happen in England and Wales.
In England the fees ban comes in this Saturday, June 1, while in Wales, a ban will be implemented on September 1.
The new regime in England does specifically allow the taking of holding deposits.
However, it caps holding deposits to the equivalent of one week’s rent. There is nothing in the new law to stop tenants putting down holding deposits on several properties – but, unlike Scottish renters, they do risk losing the money if they pull out.
In Scotland, the tenancy fees ban has been in force since December 1, 2017, operating under slightly different rules.
In England, from Saturday, agents will be allowed to take holding deposits of up to one week’s rent. They can only take one holding deposit for one property at any one time, and are not allowed to take multiple holding deposits. Agents should also stop advertising a property once a holding deposit has been paid.
However, the new law does not stop a tenant in England putting down deposits on more than one property. Although they face losing this if they don’t go ahead with a tenancy, tenants may consider that paying two or three holding deposits could prove a worthwhile strategy in a market of high demand. They also have the right to challenge when an agent does not repay a holding deposit.
Holding deposits in England should be repaid by agents in full within seven days in the event of entering into a tenancy agreement with the tenant, or if the agent decides to withdraw from the proposed agreement, or if the ‘deadline for agreement’ passes with no tenancy being entered into.
The ‘deadline for agreement’ is the 15th day after the holding deposit has been received, unless a different deadline is agreed with the tenant in writing.
Agents need not return a holding deposit only in specific circumstances.
These are: if the tenant provides false information, such as over-stating their income; fails a Right to Rent check; withdraws from a property; or fails to “take reasonable steps” to enter into a tenancy agreement.
EYE asked ARLA chief executive David Cox about the issue of holding deposits in Scotland.
He confirmed that they are illegal. He said: “However, what Scottish agents have done is take an amount of money upfront from the tenant to take the property off the market (effectively a small part of the rent in advance).
“This then goes towards either the main security deposit or the first month’s rent for the successful tenant.
“However, unlike holding deposits in England which can be kept by the agent in certain circumstances, in Scotland, because the concept is technically banned, if the tenant pulls out the agent has to give all the money back.”
While the taking of holding deposits will be allowed in England, a number of commentators have suggested that agents should ask themselves whether it will still be sensible to do so.