Scamming the students

Every year in London tens and possibly hundreds of thousands of pounds are unfairly withheld by letting agents.

This year we have dealt with more than 50 complaints about holding deposits. But this is only the tip of the iceberg. We suspect that for every case we deal with, there are another dozen cases that we don’t even hear about. This is our fastest growing area of case work.

The basic principle is that a would-be tenant makes an offer for a property to a letting agent. The letting agent asks for a holding deposit, in return for an agreement to stop marketing that property. The agent then puts the tenant’s offer to the landlord. If the landlord decides not to accept the offer, the holding deposit is returned to the prospective tenant. However, if the tenant withdraws the offer, the deposit is forfeit.

There are major flaws with this approach. For one, the contract is entirely one-sided. The prospective landlord or agent can withdraw with no financial penalty whereas the prospective tenant cannot.

The contract is also unfair since the vast majority of holding deposit receipts will not include all the terms necessary to any letting agreement. Many contracts, for example, will not have a moving in date or state how long the landlord has to consider the offer. This allows the landlord to keep the prospective tenant waiting for an unreasonable time. If the tenant can no longer afford to wait and withdraws the offer, the deposit is lost.

Waste of time

A recent case involved two young overseas students who were shown a property by a well-known Association of Residential Lettings Agents (ARLA) registered letting agent. They liked the property and were put under enormous pressure to put down a holding deposit. The landlord demanded a bigger deposit, which the students refused to pay. Believing the deal was off, they looked elsewhere. When they found a cheaper flat through another agent they went back to the original agent and asked for their holding deposit back. They were told that the landlord had reconsidered their offer and was now prepared to accept them as tenants. However they had already signed a contract for the other property, so the agent kept their money. We recovered the money in this instance but it took a lot of time.

Landlords often use a number of letting agents. This means that paying a holding deposit doesn’t guarantee that the property will be reserved. If one agent stops marketing it, they cannot prevent rival agents from continuing to do so.

In another case, the agent didn’t stop marketing the property even after a holding deposit had been paid. Crystal Ruff, a PhD student at University College London, saw a property marketed by another well-known letting agent. She liked it and put down a holding deposit. However, she was amazed to see new postings for the property on the Gumtree website. Some of these postings were by other letting agents than the one she paid the holding deposit to. But at least two were by the same agent.

The agent called her three days before her proposed move in date, telling her that someone had outbid her on the property and asking whether she could increase her offer. She refused and demanded her money back. In this case the agent paid her but she still had to find somewhere else to live at extremely short notice.

‘The letting agency took our holding deposit and then continued to advertise and show the property... they literally left us out in the cold,’ she said.

The sums retained by landlords/agents bear no relation to their costs. A holding deposit is usually equivalent to two weeks rent. Although the letting market has changed, it is still rare for a property to have a void of two weeks as a result of a failed tenancy negotiation. Holding deposits provide no benefits to prospective tenants while the landlord/agent gains significant bargaining power. And many agents go further. If an offer is not accepted because the credit referencing checks fail or the prospective tenant is unable to provide financial guarantors, most letting agents consider they are entitled to keep some or all of the holding deposit.

But the contract regulation unit of the Office of Fair Trading is clear on this point: ‘Where the tenancy does not go ahead because the landlord or agent decides not to proceed, whether this is on the basis of a failed reference check or not, then we take the view that they are not entitled to charge the tenant for the costs they have incurred because it is the landlord/agent who has breached the agreement, not the tenant.’

But letting agents simply do not understand or accept this. We recently dealt with two overseas students who paid a £500 holding deposit to secure a property. The agent then told them that they would need to provide either six months rent in advance or a UK-based rent guarantor. They were not in a position to do either of these things so the agent told them that their deposit was forfeit.

In another case, two UK-based students viewed a property through an estate agency (members of both ARLA and the National Association of Estate Agents). They paid a holding deposit of £500 to reserve it.

They were given tenant and guarantor application forms which required detailed information. The agent then contacted them to say their guarantors were not acceptable as they were not homeowners. They had not been told the guarantors needed to be home owners. None of their £500 has been returned. In another case, Christie Vincent and her friend viewed a property through an agency and paid a holding deposit of £850 to reserve it. The agents then told the students that the landlord was against having student tenants. £600 was returned but £250 was withheld for ‘administration costs’.

‘Coming to London to study was daunting enough without the trouble of letting agents and landlords,’ says Christie. ‘I couldn’t believe we were being charged for absolutely nothing. I’ve gone past caring about the money now, I just want to prove how unfair and unjust their terms are.’

Such examples are typical of the cases in which students make honest attempts to secure accommodation and end up losing money. Even when they recover the cash, they have lost valuable time and have to start their housing search all over again.

International students are often the victims and the experience can have a long-term and detrimental impact on their academic studies and their life in the UK.

The Rugg review on private renting emphasised the need for tighter regulation of the private rented sector. In any reform, measures to guarantee the return of holding deposits must be a priority.

Bob Miller and Roland Shanks are head of housing services and senior housing adviser at the private sector housing unit of University of London housing services.