Small claims holding deposit success

A local judge ordered an estate agent to return a tenant’s holding deposit once the agent decided not to proceed with the tenancy.  Housing Rights represented the tenant at small claims court.

The tenant, Karen, applied for a tenancy with an estate agent in June 2014.  She signed an application form and paid a £400 holding deposit.  The form contained a declaration stating that the tenant’s holding deposit would be liable to charges if the tenant decided not to take up the tenancy.  Karen also noted on her application form that she wasn’t working and was claiming jobseekers allowance.

The agent required the tenant to pay a tenancy deposit, obtain a guarantor and pay the first month’s rent in advance.  Karen was unable to provide a suitable guarantor so the agent agreed to accept an additional deposit instead.  She paid a further £360.  After paying out a total of £760, Karen wasn’t able to pay the month’s rent in advance and would have to wait four weeks for her first payment of housing benefit.   The agents told Karen to apply for a crisis loan to help with the rent in advance and provided the client with a letter explaining why she needed this loan.  Karen’s crisis loan application wasn’t successful.  As she had no other means of paying the rent in advance, the agents decided to withdraw from the tenancy.  The agent returned Karen’s payment of £360 but stated that they intended to keep the original £400 holding deposit to cover the cost of reletting the property.

Stephen, the Housing Rights adviser who helped Karen with her case, tried to negotiate with the agent, but these attempts were unsuccessful.  Stephen represented Karen at Small Claims Court.

Arguing for the return of client’s holding deposit

Stephen made several arguments to explain why he felt the money should be returned to Karen.  These centred on whether it was fair for Karen to be penalised when the agent had decided to withdraw from the agreement and on whether the declaration relating to the holding deposit was in plain, intelligible language.

1. Regulation 7 of the Unfair Terms in Consumer Contracts Regulations 1999 states that, “A seller or supplier shall ensure that any written term of a contract is expressed in plain, intelligible language.” The application form that Karen had completed did not outline the circumstances that could lead to the agent keeping the holding deposit.
2. Schedule 2 of the Unfair Terms in Consumer Contracts Regulations 1999 provides a non-exhaustive list of terms that may be regarded as unfair.  This schedule states that a clause allowing “…the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract” should be regarded as unfair.   Stephen argued that the agent’s terms gave the agent a right to retain the holding deposit if Karen had decided to withdraw from the agreement, but that this right did not apply where the agent or landlord withdraws.  It would be unfair to penalise Karen in this case when the agent (or supplier) had dissolved the contract.
3. Despite having no income other than benefits, Karen managed to raise £760 for a double deposit. Based on the evidence provided , it appeared the estate agent had placed an unreasonably high burden on an applicant in receipt of benefit income to access a private rented property by asking the client to pay rent in advance on top of the £760 she had already paid.
4. Karen was eligible for housing benefit.  If the tenancy had gone ahead she would have received a housing benefit payment at the end of the first month and would only have had to make up a small shortfall payment.  

The agent felt that Karen should not have agreed to apply for the property if she had known that paying rent in advance would be a problem. The agent explained that all applicants are given a checklist when they initially express interest in a property and this checklist clearly states that rent must be paid in advance.  

Despite the agent’s counter argument, the judge decided that she agreed with the points raised by Housing Rights and made an order for the Estate Agent to pay our client the full £400 deposit plus the £50 court fee.

Understanding how consumer law can impact your work

Consumer contracts, such as that entered into by Karen, must be fair.  The main legislation which governs these contracts is the Unfair Terms in Consumer Contracts Regulations 1999, but there are other regulations which apply to consumer contracts, sale of goods and provision of services.  The Competition and Markets Authority released guidance in 2014 to help explain how consumer law impacts on the practices of letting agents.  This is essential reading, not just for lettings professionals, but for anyone who regularly advises private tenants or landlords. 

Taking or defending a case in the small claims court

Housing Rights have a course coming up on dealing with housing matters in the small claims court. This course assists advisers in taking or defending a case in the small claims court looking in detail at:

• Types of cases that can be heard
• Procedures
• Presenting a case in court
• Structuring submissions/notices in line with CCR and procedure
• Enforcing the judgment

​This course will be in Belfast on the 3rd August and Derry/Londonderry on the 4th August.