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 situation should be evaluated individually. In the first scenario the lessee cancels the agreement at such a time that the landlord cannot secure a new tenant, which will result 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.
The second scenario will be where the landlord is able to secure a new tenant in time and will not suffer any damages. In a case like this the landlord are not entitled to receive the deposit or a part thereof since no damages were suffered and there is no need to receive any compensation. Should the landlord withhold the deposit or part thereof in a case like this, it will be undue enrichment. If however, an estate agent was involved and commission is payable, the estate agent is allowed to receive commission which may be subtracted from the deposit. If the landlord paid the commission for the placement to the agent the landlord will be allowed to receive the amount paid to the estate agent from the deposit. The remainder, if any, of the deposit will have to be refunded to the tenant.