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Tenancy deposit – What you need to know
Any tenancy agreement should include a clause that specifies how the deposit is to be held, who by and who is entitled to any interest which may be earned on it. (Where a deposit is held by a third party as stakeholder, case law has determined that that party is entitled to retain any interest accrued). The agreement should include details of how the deposit will be dealt with at the end of tenancy, including the circumstances or criteria or procedure for its refund.
It’s the tenants money
The deposit remains the tenants’ money at all times during the tenancy and should not be used to subsidise either the landlord’s or the agent’s outgoings or expenditure other than by specific mutual agreement (with the tenant) or by express provision of a clause in the tenancy agreement.
Held as ‘agent for the landlord’
A deposit held by an agent “as agent for the landlord” has, ultimately, to be refunded or apportioned on the landlord’s instructions or by the agent under his authority as a contracted Agent on behalf of, a Principal (the landlord client). Every reasonable endeavour should be made by the agent to ensure that this process is fair and equitable and supported by appropriate documentation so that a landlord (or his agent) does not take unlawful advantage.
Held as ‘stakeholder’
A deposit held by an agent “as stakeholder between the parties” is being held in a quasi-trustee position on behalf of both parties. Whenever possible the agreement of both parties should be obtained (in writing) as to how the deposit is to be disbursed. In the event of a dispute the agent as stakeholder is entitled to retain the deposit (or the disputed part of it) until the dispute is settled. Every reasonable endeavour should be made to ensure that this process is seen to be fair and equitable and supported by appropriate documentation. Ideally, the relevant deposit clause of the tenancy agreement should include a provision or options for an unresolved dispute to be referred to a Dispute Resolution Scheme, such as or Expert Adjudication or Arbitration. Ultimately however, if after exhaustive attempts to resolve the dispute equitably it is considered by the stakeholder that one party is taking a wholly unreasonable position and it would thus be unfair to the other party to retain the deposit, an agent could advise both parties and distribute the deposit as the agent as stakeholder considers appropriate, taking account of, and supported by, appropriate evidence.