Over the years, I have received a number of complaints about agents, often instructed on a tenant find only basis, who have not forwarded the tenant’s deposit to the landlord, as they have advised they will do in their Terms of Business, to allow the deposit to be protected in a tenancy deposit scheme. Instead, the agent has retained the tenant’s deposit and used it to offset the fees due to them from their landlord client, considering this to be perfectly acceptable and no more than a ‘paper exercise’ to ensure payment of their fees.

I have always criticised the agent for such action. So concerned have I been by this practice, that the 1st August 2014 version of the TPO Code of Practice for lettings agents has been amended to incorporate an agent’s obligations in this regard. Paragraph 11k of the Code specifically emphasises that deposits belong to the tenant and states that where it is passed to the landlord for protection in a tenancy deposit scheme, any charges due from a landlord for fees etc must be dealt with as a separate issue and not deducted from the funds passed to the landlord. Put simply, the deposit monies are the tenant’s monies until such time as it is appropriately deemed otherwise.

A deposit is always the tenant’s money, even when it is put into a deposit scheme.”

I realise that many landlords, and indeed agents, will be unaware that the retention of the deposit to cover payment of monies due is unacceptable. Complaints received about this matter tend to be from landlords at the end of a tenancy, absolutely adamant that the agent has never passed them the deposit monies, and claiming the deposit needs to be returned to the tenant by the agent or from tenants, understanding from their landlord that the agent is holding their deposit. In some cases, not realising that the agent had ‘on paper’ passed them the deposit monies (albeit no monies
were actually received), the landlord has failed to register the deposit and thus, unintentionally, exposed themselves to the threat of a possible court claim by the tenant. My Office will spend some time attempting to explain to all parties what has occurred, and it is likely that there will be an award for aggravation made against the agent as it is their actions that have usually led to this confusion.

Bad practice

In one case referred to my Office, the agent’s terms of business explained that they did not hold the deposit but advised that it would be transferred to the landlord with the first month’s statement and the landlord should ensure it was registered with a tenancy deposit protection scheme. The agent did not transfer the deposit monies, instead using the deposit and first month’s rent paid by the tenant to settle their own fees.

I supported the complaint as I did not consider that the agent had acted in accordance with their obligations; they had advised the landlord that the deposit would be paid to her in order that she could register the same with a tenancy deposit scheme. Indeed, the agent had ensured that the landlord had registered with such a scheme and had taken details of her registration number. Accordingly, I would have expected the transfer of the deposit to the landlord to have been clearly shown on the statement together with an invoice showing their fees, offset by the first month’s rent only, and a request for the balance of fees owing. The landlord wrote to the agent querying their approach, but, receiving no response to this letter, in order to ensure that she complied with the obligation imposed upon a landlord, she paid her own money in to the scheme. I considered the agent’s shortcomings when dealing with this matter to be serious and not in accordance with the standards required by the TPO Code of Practice. Such conduct in collecting the deposit from the tenants, which was then utilised to pay their own invoice, is simply unacceptable. However, as my Terms of Reference do not entitle me to make punitive awards, my award for the aggravation and inconvenience was modest. I noted that the Complainant was not, at the time, financially disadvantaged by the agent’s actions.

Agents should be aware that utilising any part of the tenant’s deposit to cover their own fees is in direct conflict with what is considered best practice, the TPO Code of Practice, and the provisions of the Tenancy Deposit Protection Scheme, and in particular the relevant sections of the Housing Act 2004 (specifically Chapter 4, sections 212 and 213). Deposit monies simply cannot be used by an agent to settle their own fees; they are the tenant’s money. The purpose of any security deposit is that money is taken from a tenant and remains the tenant’s money, despite being paid and held by an agent or a landlord in a protected scheme. Such deposit may be used to protect the landlord in any future dispute over compensation for noncompliance by a tenant of a tenancy obligation.