The landlord said that the Tenancy Agreement stated that the letting agent had collected a deposit of £800, but that they refused to transfer these monies to an onward letting agent. The landlord complained that the agent subsequently informed him that the deposit for the property was in the form of an Alternative Deposit Scheme, which he did not agree could be used for the tenancy. 

He felt that he was deceived into signing the Tenancy Agreement and believed the agent received commission from the insurance company providing the Alternative Deposit Scheme. The landlord said that he was unable to instruct another letting agent to take over management of the property, as none would accept the tenancy without being provided with the deposit monies. The landlord was seeking to recover the £800, plus compensation.

The agent responded, acknowledging that the landlord had not expressly authorised the use of the Alternative Deposit Scheme for the tenancy, as detailed in the Terms of Business. However, the agent said that the Tenancy Agreement was accurate regarding the use of the scheme, which the landlord and tenant both signed. 

The agent argued that the tenancy was still active and no claims had been made against the deposit. The agent felt the lanflord’s request for £800 was unjustified as he had not experienced any loss and the cover provided by the Alternative Deposit Scheme was of a higher monetary value than if a cash deposit had been in place for the tenancy.

Investigation

Under Paragraph 13a of the TPO Code of Practice, the letting agent was required to prepare an appropriate written Tenancy Agreement that included any agreed or specially negotiated clauses or terms particular to the property of the circumstances of the parties to the letting, including Prescribed Information. 

The Tenancy Agreement was required to be transparent in relation to the commitments of each party. In accordance with their obligations under Paragraph 13o of the Code, where a deposit replacement product, such as insurance, was proposed by the agent in place of a traditional deposit, the potential advantages and disadvantages of the product were required to be explained in clear terms to the landlord and tenant, and the agreement of both parties sought before proceeding.  The Ombudsman also considered the agent’s obligations under Paragraph 2d of the Code where, if they intended to offer or recommend to consumers any services, including insurance, where the service provider rewarded the agent for the referral, this arrangement was required to be disclosed in accordance with the Consumer Protections from Unfair Trading Regulations 2008. 

With regard to the landlord’s comment that the agent received commission from the Alternative Deposit Scheme, the agent was entitled to refer customers for such services, provided that it was appropriately disclosed. After reviewing the  Terms of Business, the Ombudsman was satisfied that the agent disclosed the potential for a referral commission from the Alternative Deposit Scheme, which the landlord signed to agree his understanding and acceptance of. 

However, with respect to the deposit replacement product, within the Terms of Business, the agent asked the landlord to confirm whether the property could be marketed with the option of such a product. The landlord did not tick the required box to confirm that this type of product could be used. Therefore, the Ombudsman would not have expected the agent to have marketed the property suggesting use of such a product was available, nor should tenants have been offered such a product when applying for the property.  As there was no evidence to show how the agent marketed the property, the Ombudsman could not deternine whether the agent had marketed accurately or not in this regard.  

However, the Ombudsman was provided with the tenant’s holding deposit paperwork where the agent asked the tenant if they wished to use a deposit replacement product for the tenancy, which had been ticked ‘yes’. This option should not have been offered to the tenant in the first instance.

There was also no evidence that the use of the deposit replacement product was communicated to the landlord appropriately, nor was there anything to demonstrate that the advantages and disadvantages of using the scheme had been explained to the landlord and tenant, allowing them to made an informed decision. 

With regard to the content of the Tenancy Agreement, it set out the obligations of the landlord and tenant in relation to the deposit and stated that the tenant would either provide a cash deposit of £800 or purchase the Deposit Replacement product, as a substitute for paying the cash deposit. The Agreement detailed both the terms relating to the Deposit Replacement product and the terms relating to a cash deposit. . As the agent included information about both the options for deposits, rather than only containing the information for the deposit option used for the tenancy, Ombudsman was not satisfied that the agent produced an appropriate written Tenancy Agreement that included specific clauses that related to the tenancy and concluded the existence of both deposit options had caused confusion. 

Outcome  

The Ombudsman supported the complaint, due to the agent’s confusing deposit information within the Tenancy Agreement, and for not acting upon the landlord’s instructions regarding the type of deposit he wished to have in place for the tenancy.

From the evidence provided, it did not appear that the tenant paid the agent a cash deposit of £800 and, therefore, the Ombudsman could not fairly or reasonably direct the agent to transfer this amount to the landlord. The landlord was protected up to the value of £969.24 for any damages the tenant may cause, which he was able to make a claim to the Alternative Deposit Scheme at the end of the tenancy. Consequently, the Ombudsman could not conclude that the landlord experienced any financial loss as a result of the agent’s actions. The award was therefore limited to reflect the avoidable aggravation, distress and inconvenience caused to the landlord.

In respect of the landlord’s claim that the existence of the Deposit Replacement product prevented him from instructing another agent, the emails provided indicated that this was not the case, albeit the agents he had approached stated that they did not normally deal with tenancies with Deposit Replacement products.

The Ombudsman concluded that the agent’s failure to communicate regarding the Deposit Replacement product prior to the tenancy being entered into, and the ambiguity of the Tenancy Agreement with regard to the deposit arrangements, had caused the landlord significant aggravation, distress and inconvenience. An award of £500 compensation was made to the landlord.