OpenRent Community

Can we deduct the cost of reference fees from holding deposit if the tenant fails?

With the impending tenant fee ban, will we be able to deduct the cost of reference fees from the holding deposit if the tenant fail their reference checks?

Hi there,

Once the tenant fee ban is in force, it won’t be possible to force tenants to pay for referencing regardless of whether they pass or fail.

So in the scenario you’ve mentioned (tenant applies, reference is declined, landlord rejects the application) the landlord pays for referencing and can’t deduct the cost from the holding deposit.

In case you haven’t seen it, we also have some useful information about the fee ban on our blog here:

https://blog.openrent.co.uk/tenant-fees-ban-what-landlords-need-to-know/

Thanks,
Simon

Thanks Simon, thought this may be the case.

Personally i think most of the fee ban is correct with the exception of the referencing costs. It does not feel right that when a tenant fails the reference, the landlord pays. We have already lost rental income waiting for referencing which more often than not they delay when they know it will fail.

I accepted a tenant and was waiting for her to sign the contract when emailed to tell me she can no longer rent the flat. Do I have to refund her the referencing cost -and the holding deposit?

There was talk on various property boards when this new law was first announced that landlords would start asking for verifiable, recent references from recognised agencies FROM THE TENANT.
This was one way of making the tenant pay the consequences of failing references.

I’m not sure I would be pointing prospective tenants at RentGuard and saying, “apply to them and show me the pass documentation so I can get RGI”, but I don’t like tenants that fail references.

In the past, before I got more savvy, I got quite a lot of failures; mainly from “chancers” that basically lied to me and wasted my time. This does nothing to stop those people and means I have to be more diligent BEFORE I start referencing.

In a couple of years I predict we will have to check the MOT on their cars as well :slight_smile:

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From what I understand you can retain the holding deposit if the tenant withdraws from the property. You need to put it in writing as to why you are keeping the holding deposit within 7 days - as long as this is before the ‘deadline for agreement’.

Check out the full guide from the gov website which explains all the above: Tenant Fees Act 2019: guidance for landlords and letting agents

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Its against the law to impose a tenant to obtain a reference from a third party

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Thanks for these great answers, Oliver!

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The Tenant Fees Act seems to provide for the Landlord/Agent to retain the holding deposit where the Tenant provides misleading information which materially affects their suitability to rent the property (paragraph 9). To weed out Tenants who verbally mislead the Landlord about factual information, i.e. inflating their income/incorrectly stating they have no CCJs registered against them, could Open Rent ask the Tenants to confirm when paying the holding deposit that they earn a minimum of 2.5 times the rent and that they have no CCJs registered against them with a stipulation that if the reference is returned with information that contradicts this, the Landlord will be entitled not to proceed and to retain the holding deposit?

I agree totally with this suggestion. I would be happy just to recover the reference costs from them. I have already lost time so in effect lost money, why should I lose even more?

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before you do a reference or credit check on them. Ask to see ID, proof of present residence, Proof they have the money for a months rent and deposit., wage slips… or a confirmation letter from employer… If these are not forthcoming No need to pay for a reference. Be savvy. Ask questions over the phone or via open rent and write these down, so ask the same questions if you see them and compare answers to check if the same . I put the referencing cost on the rent as it is a property expense

Yes Christopher, this was our preferred outcome, too.

simon,

so does the landlord have to pay for another reference or do they get a credit .

paul

Hi Paul,

For the first reference to fail, it will have completed - which means it is chargeable and can’t be refunded.

Where you subsequently order another reference you would need to pay again.

That said, you don’t need to pay twice for Rent Now (our tenancy creation service), so won’t be charged where referencing fails and you cancel the application.

Thanks,
Simon

Would it be possible to ask a potential Tenant to submit an up to date Credit check with their enquiry, in order for their application to be considered?. That would filter out all the time wasters, and save Landlords the cost of potentially several Credit checks to find the suitable Tenant.

If you ask questions thru openrent first you will save a lot of hastle in weeding out the no chancers

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Hi Robert, because a credit check it something you have to pay for (even if it is very cheap), you can’t make this a condition of the let going ahead, as it would be a prohibited payment.

Colin’s suggestion of using our auto-reply and screening questions is a good way to help.

You can find out how here:

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So following this discussion has anyone actually charged an applicant for a failed reference where they provided false information (as per the guidance)
I have just processed two applicants who confirmed in writing that they had no CCJs but the credit check showed that they both had outstanding unpaid CCJs
I want to deduct the cost from their deposit but I’m a bit nervous given that it’s a new law and as with so much of Uk law rather unclear
Is it worth risking a fine of £5k to save £40

this is unfortunate,. think yourself lucky you found out., at least you can set it against tax. It is a business expense.