To Refund . . . or Not?

Letting agents often get caught in the middle of landlord-tenant conflicts due to the manner in which the rental deposit is dealt with on termination of the lease agreement.

According to the Rental Housing Act an exit-inspection is to be arranged within seven days after the tenant vacate the property. Should one of the parties fail to attend such arranged inspection, the other party is allowed to proceed to inspect the property on her own and compile a list of any damage caused to the property. This list will then be sufficient proof to deduct the damage listed from the deposit. The damage is quantified, usually by obtaining quotations from two or three service providers, and deducted from the deposit. The remainder of the deposit must then be refunded to the tenant within fourteen days.

The situation often arises where a lease agreement is concluded and a legally binding contract comes into being, the deposit is paid, but shortly before the lessee can take occupation of the property the lease agreement is cancelled by the lessee. The question in this situation is, who is entitled to the deposit? Unfortunately, the answer will differ from case to case and each should be judged on its own merits.

In one scenario, the lessee cancels the agreement at such a time that the landlord cannot secure a new tenant, resulting in a loss of income. In this case the landlord will have the right to receive, at least the deposit, as a reasonable cancelation penalty, as contemplated in the Consumer Protection Act, since he reserved the property for that lessee. If there was an estate agent who placed the lessee, the estate agent will be allowed to receive commission for the placement. This might not be a full placement fee, but a reasonable fee to compensate the agent for the services rendered.

In another scenario, the landlord was able to secure a new tenant in time and did not suffer any damages. In this instance, the landlord is not entitled to receive the deposit or a part thereof since no damages were suffered and hence, no justification to receive any compensation. A landlord withholding the deposit, or part thereof in a case like this, would have been unduly enriched unless for example, an estate agent was involved and commission was payable. The estate agent is allowed to receive commission which may then be subtracted from the deposit. Alternatively, if the landlord paid the commission for the placement to the agent the landlord will be allowed to receive the amount paid to the agent from the deposit. The remainder, if any, of the deposit needs to be refunded to the tenant.