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Tenant Fees and Holding Deposits - The Importance of Being Earnest 2

So September has arrived and of course that means that kids go back to school and Parliament and politicians, return to Westminster to resume their travails of leading and legislating.

Of course as regular readers of my blogs know, the mysteries of the political world are not easy to grasp and the processes of law making, whilst archaic and convoluted, need to be at the forefront of the public conscience especially when it affects your business or sector.

Therefore possibly the most seismic legal change to the lettings world takes a big step forward on 5th September. This is when the Tenant Fees Bill 2018 goes to its Report Stage and Third and Final Reading in the House of Commons. Both stages will be dealt with on the same day with the debates being held in the main chamber of the Commons. At the Report Stage amendments can be tabled, however these are selected by the Speaker and time will be limited.

As this is Government legislation the Parties will be whipped (compelled to vote along the party line) so expect no surprises.  I suspect the Government will be faced by amendments on details of the bill but that the opposition parties will pass it nevertheless. As observed from the scrutiny at the Committee stage, the amendments will probably be centred on the number of weeks deposit that can be taken and default fees. The bill will then move to the Third Reading where there can be no amendment and the Bill can only be accepted or rejected in its entirety.

This however is not the end of the process as the Bill then goes to the  House of Lords and the whole process starts again (assuming that the Bill is passed in the Commons). It is frustrating that we will not know the final form of the legislation until then, however we will have a good idea after Wednesday.

It is also interesting that over the border the Welsh Tenant Fees Bill is also progressing. Next Friday, (September 7th), the public consultation initiated by the committee scrutinising the bill closes. I have already responded and concentrated on the areas of permitted fees and holding deposits. I have commented on the practicality of the measures and how it would work in the current situation where redress is offered to resolve disputes in these areas.

Holding Deposits were also on the agenda at a gathering I attended last week in the Faculty of Law at the University of London (UCL). This event hosted by the UCL Centre for Access to Justice was entitled Forum on Tenant Fees and Holding Deposits and featured some eminent speakers such as David Smith of Anthony Gold. To be fair it was a bit of a lawyer’s field day as the discussions focused around the legal nuances of the terms and the bills, however it was interesting nonetheless.

As you may know, I do like a literary analogy and in the past I have slipped some of my favourites into my musings. So I do not apologise in using another one in my title even though it will be for the second time. Wilde’s play “The Importance of being Earnest” is once again apt as you will see below:

The debate concentrated on three areas, the first was on the nature of whether it is a contract and what type of contract a holding deposit is. The second area was who does an agent actually act for and whether paying a fee or not makes a difference. Finally enforcement and remedy was examined.

On the first topic it was quickly decided that a holding deposit is a contract between an agent and a prospective tenant so the terms and conditions need to be clearly laid out. The panel then proceeded to examine what type of contract the parties thought they were entering into. Was it for the benefit of the prospective tenant, the landlord or the agent? From the tenant’s point of view, they think that the property is being reserved exclusively for them and no longer marketed. The landlord that his position is protected and there is compensation for if they are left in the lurch, and the agent that the work and expense they outlay is covered if the transaction falls through. They can’t all be right!

David Smith pointed out that this ambiguity was now going to be compounded as holding deposits were going to be enshrined in law. He observed that nowhere in the legislation or previous law is a holding deposit defined and that in his view the best a tenant can expect is first “dibs” on the property and not a guarantee that the property will be theirs subject to contract. This means that even if the tenant jumps through every hoop the landlord still has the right to reject him. All the law does is prescribe the maximum amount you can put down and ensures you get it all back if you do not get the property through no fault of your own. To this effect there is little benefit from holding deposits in his view to the applicant tenant.

From the landlords point of view the holding deposit has some merit but again David stated that this was in the form of it being earnest money, essentially ensuring good faith between the parties. Whilst this is a moot point from a legal stand point as this form of deposit is usually reserved for high worth property deals or procurement and involve a conveyancer, however the term has provided me with a good pun for this piece. Thank you David and Oscar!

The discussion then went on to discuss a whole lot of conundrums such as what happens in the situation when the property is marketed by several agents and what if they all took a holding deposit. Multiple agency is becoming common, especially in the Capital and other letting hotspots. As you can guess with a room full of lawyers no firm conclusion was reached!

The debate moved to fees in general and under the heading “A servant of Two Masters” apparently in homage to the play of that name by the Carlo Gordini, however as my knowledge on 16th Century Italian theatre is sketchy I will stick to Victorian high farce and the famous biblical quote for my part.

The panel attempted to debunk the myth that has become common place in the sector to believe that a letting agent has both an obligation of obedience to their landlord and simultaneously a duty of care to their tenant. In the view of the panel this is legal bonkers and has no basis in law. As one of them pointed out, can a tenant sack the agent? If not where is the contractual relationship? The view was therefore just like when confusion reigned over the identity of Ernest, the arguments for agents taking a fee from the tenant for services rendered are fallacious. In the opinion therefore the legislation is potentially flawed as the tenant is not really the agent’s consumer.

Whilst legally this may be correct, I as an alternative dispute resolver do not have the same constraints as courts and lawyers and will continue to treat both tenants and lawyers as consumers of agents.

The final part of the discussion was around enforcement, John Gallagher the Principle Lawyer at Shelter, presented a dismal picture of the prospects of tenants getting justice and whilst one of the panel had successfully sued their landlord on the basis that they were ultimately responsible for their agent, the lack of resources put onto enforcement meant that the system was not working.

David Smith finished by saying that until the Government face up to the problem that they need to build more houses, the issues in the sector will continue and new laws are not going to sort it out.

At the end of the session were the questions answered? Well – no unlike Oscar Wilde the panel did not have a magic pen to resolve all the quandaries that the new law will present in a neat ending and we will just have to wait and see how it all pans out.

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