Unlawful premiums and holding deposits

Claire Mullen of TC Young solicitors explains the complexities of levying charges that could potentially be in breach of the letting agent code, the full article can be read in our Autumn issue of Landlord Focus, (members please remember to log in to access our documents and past issues of Landlord Focus magazines).

What is an unlawful premium?

Section 82 of the Rent (Scotland) Act 1984 provides that it is an offence to require payment of a premium as a condition of the grant, renewal or continuance of a protected tenancy.

A premium is defined as “any fine, sum or pecuniary consideration, other than the rent, and includes any service or administration fee or charge”.

Is it lawful to charge a holding deposit if it is returnable?

A holding deposit is a sum of money paid by a prospective tenant in order to prevent a property being shown to other prospective tenants.

There appears to be the perception that a holding deposit is not a premium provided it is returned to a prospective tenant when a tenancy does not proceed.

However, that view neglects to consider the exemption in full. The exemption only applies if the purpose of the deposit is “security for the tenant’s obligations for rent, for accounts for supplies of gas, electricity, telephone or other domestic supplies and for damage to the dwelling-house”.

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