A case that The Property Ombudsman (TPO) was asked to review came from landlords concerning the use of part of the deposit being used as rental payment.
The landlords said that the agent used the deposit for the tenant’s rent, without consulting them first. The tenant then continued to miss rent payments and the property was returned to the landlords as a result of a possession order.
The landlords claimed that they had to undertake work to return the property to the condition it was in at the start of the tenancy, and they had no monies from the deposit to use for this.
The agent responded saying that they believed they did all they could for the landlords. They explained that the tenant was having financial problems and they therefore used business money to pay the rent.
Their viewpoint was that the landlords would have received the money at the end of the tenancy by receiving the deposit in full, so financially, they were not out of pocket. They were in the same position they would have been had the deposit not been used to cover the rent.
The agent considered that they were entitled to take this action as per clauses 3.13 and 4.3 of their management agreement.
When an agent holds a tenant’s deposit during a tenancy, they must not disburse the deposit without the agreement of the landlord and the tenant, as a matter of best practice. Any deposit held by the agent should have been treated as client’s money and the Ombudsman would have therefore expected them to not make any deductions whilst the tenancy was still ongoing. Both the tenant and the landlords should have also been informed, as taking money for unpaid rent meant the opportunity to claim for damages at the end of the tenancy was reduced.
The Ombudsman said that proper procedure would have been to retain the deposit until the tenant vacated the property.
The landlord could not make a claim for the full deposit for damages caused and repairs that were required at the property. There was only £100 left of the deposit for this purpose.
With regard to the agent’s management agreement, clause 3.13 stated that they were required to follow proper procedure under the terms of the deposit scheme used and that the deposit would be retained until the tenant vacated the property.
It said that it would not be forwarded to the landlords during the course of the tenancy, even in the event of rent arrears accruing and/or damage being caused to the property.
From this clause, the Ombudsman did not think they were entitled to use the deposit to cover unpaid rent during the tenancy and was not satisfied that the agent acted appropriately in line with their management agreement.
Clause 4.3 of the agreement stated that the landlords had authorised the agent to act on their behalf with regard to collecting rent. Whilst this allowed them to obtain rental payments from the tenant and pass them to the landlords, the Ombudsman viewed that this did not extend to the deposit money.
From the clauses and in terms of best practice, the agent should not have taken the action that they did. When a tenant misses a rental payment, there is no guarantee that they will make this up during the tenancy.
Having examined the correspondence between parties, the Ombudsman found it concerning that the agent said that this action was standard practice for a first late payment of rent. This is not a sensible or sustainable approach. The agent’s obligation in this regard would have been to communicate with the landlord when rent had become overdue and to remind the tenant of their responsibility to pay rent on time under the tenancy agreement.
It was apparent that the agent forwarded the money without informing the landlords that the tenant had not made the required rental payment. Over two months later, the agent informed them that the tenant was actually in rental arrears of three months. This left the landlords unable to make a claim from the deposit.
The Ombudsman supported this complaint and made an award in compensation of £300. This reflected the undue aggravation, distress and inconvenience caused to the landlords.