Confusion over Renewal (URGENT)

Landlord Discussion Legal
1

Hi all, one of my tenants is staying. She is the lead tenant. Another tenant is leaving and a new one coming in. So I’ve set up a new 6 mth contract which all have signed.

However, it is not clear what happens regarding rental payments and deposits.

The new tenant has been told by Open Rent to pay the first month’s rent directly to me. I thought Open Rent took the first month’s rent?

Meanwhile he has also been told his deposit has been registered even though he has not been asked for payment and hasn’t paid anything.

My Deposits has no record of the tenant who is leaving, even though she paid a deposit. The Deposit is held under the lead tenant’s name. How on earth is the leaving tenant supposed to get her deposit back?

Thank you

2

Was this a joint tenancy? If so, how has the outgoing tenants tenancy been ended?

3

You need to completely end the old joint tenancy, return all deposits and start a new one.

4

Hi Steve and also David,

David, I used the Renewal process, so it appeared to be a question of starting a new tenancy and in the process deleting one tenant and adding another (as well as the relevant guarantors).

The last time (last year) one of the tenants changed but one tenant remained who has been a tenant for three years. She was re-named as ‘lead tenant’, so there wasn’t a ‘joint tenancy’ as such. The new tenant at that time paid a deposit, but My Deposits doesn’t recognise her. I did a new Rent Now and everything went fairly smoothly in terms of returning deposits and Open Rent taking the first month’s rent off both tenants.

But My Deposits says they don’t ‘split deposits or count separate deposits separately’. Hence the leaving tenant is not recognised.

This time, there was an option to do a ‘Renewal’, but this is not working very well at all, at least not with the information provided by Open Rent on what I should be doing.

The ‘lead tenant’ remains the same. The new tenant is being told to pay the first month’s rent to me directly, and has not been asked for a deposit. The ‘lead tenant’ has been told her deposit is being retained, even though half of it belongs to the tenant who is leaving.

I would have been happy to pay for the Rent Now process to happen again, but the Renewal process appeared equally simple. It is not.

Open Rent says nothing about ‘Renewal’ in that I must instruct my new tenant to pay his deposit to the lead tenant so that she can return the previous tenant’s deposit.

Open Rent says nothing to the landlord about how to collect the first month’s rent or what happens to the new tenant’s deposit.

Open Rent says nothing to the landlord about whether I should action the return of the deposit held under one tenant’s name (half of which belongs to the leaving tenant), whilst they are telling the lead tenant that the same deposit will be retained and not returned.

Obviously I have contacted OR directly as I wish to resolve this within the next 2-3 days. I thought however some help might be found here, as OR’s ‘Renewal’ process appears to be a can of worms.

Thanks.

5

Sorry to say, but you have created a legal mess. Tenancy law matters as its what you have to fall back on if the tenancy goes bad.

Firstly, there is no legal concept called “renewal” in tenancy law. There is a concept of replacement tenancies, but it means replacing the existing tenancy with a new one for exactly the same group of people in exactly the same property. I have no idea what the OR “renewal” process is as I only use them for advertising, but I’d be pretty confident that it doesnt apply in this circumstance.

Secondly, there is no legal concept of “lead tenant”. Its something invented by the deposit schemes for administrative convenience. Anyone named as a tenant on the contract is a joint tenant of equal status.

What you have to do if one person wants to leave a joint tenancy is:

  1. Decide if you and all the tenants will allow this. All the occupants are effectively one tenant, indivisable. They are jointly and severally liable for the property and cant end that liability individually. This is particularly important as the rest of the tenants dont have to accept anyone new coming in.
  2. Get everyone to sign a deed of surrender on the date agreed for the swap. This should ideally be the end of a tenancy period so that you dont have to worry about rent refunds and partial months. Do a full check out inspection and schedule any deductions from the deposit for dilapidations. Then either refund the balance of the whole deposit to the tenants or preferably agree that it can all be be claimed by you and used for the new tenancy, (less the outgoing tenants share). The tenants would have to trust you on this.
  3. The remaining tenants and new arrival, (who must pay his share of the deposit) then all sign a brand new tenancy agreement and ALL other required documents, including the deposit PI, gas cert etc.
  4. You protect the new deposit the same day.

What you possibly now have is two concurrent tenancies operating at the same time for the same property. The outgoing occupant is likely still a tenant, but you wouldnt be able to hold them liable. The incoming person is also a tenant, possibly on a separate tenancy. It depends what the OR process does. You may also have breached the deposit regulations.

Does all this matter. Well no if the tenants all act as they should. However, if you ever need to evict or make a deposit deduction the tenants could tie you in knots and you would need a specialist housing solicitor to sort it out.

Just one final point. There is a concept of assignment of a tenancy where one tenant assigns to another. Legal opinion is divided on whether this is strictly possible and it is quite messy, particularly regarding the deposit. I dont think that this is what the OR process has attempted, but as I say, I’m not familiar with it.

6

Hi David, I don’t think it’s me who has created a legal mess, but Open Rent may have.

The last time a tenant left and a new one came in, whilst the original tenant stayed (max 2 tenants), I used ‘Rent Now’ (£49 but this includes advertising the property). This time there was an option to ‘Renew’ that wasn’t available last time. ‘Renewal’ is ‘free’.

I assumed the ‘free’ Renewal process would employ the same processes as Rent Now but without the advertising part, eg, a new AST would be signed, the previous deposit would be released, and OR would take the first month’s rent and deposit from the tenants.

I am waiting for clarification from OR. Nothing yet.

7

I dont think Openrent is necessarily to blame. The “renewal” option they provide is perfectly legitimate and is for landlords who prefer to have their tenants on fixed term contracts rather than letting them go periodic. Its up to the landlord to know the circumstances under which the option can be used.

Where I would concede there may be fault on ORs part is if the renewal option allows you to change any of the tenants, or at least without warning you of the consequences.

What exactly was the process?

8

Once your Rent Now tenancy has been set up you can renew your tenancy at any point for free:

  • Go to Tenancies
  • Click View Tenancy next to the tenancy that you’d like to renew
  • Then select Click to see Renewal Options and confirm that you want to issue a new contract
  • Make any necessary changes to the contract
  • Click Propose Renewal Terms to issue the new contract
  • After all tenants, guarantors and co-landlords have signed the contract you’ll be invited to sign as the lead landlord
  • we’ll re-issue the How to Rent guide and the Prescribed Information about the tenancy deposit.

What Details Can I Change?

As part of our Renewals Service you can:

  • Change Rental amount
  • Update Notice address
  • Adjust Break Clause
  • Amend Tenancy Length
  • Edit Custom Clauses
  • Change the day on which rent is due (This does not effect the start-date of the renewed tenancy)
  • Add and remove tenants and guarantors

You can’t currently:

  • Change landlords
  • Add or remove landlord co-signatories
  • Increase deposit amount
  • Change the property address
  • Change the day of the renewal date as it must be in the future and the same day of the month as the original contract

If you would like to change any of the above you’ll need to create a new tenancy. For further information please contact us.

9

That’s very interesting @Sue9. I had an exchange of posts with one of the OR staff a few months back on this very issue, where they assured me that their process was legally compliant. I would suggest you contact them and ask them exactly how their process works with changing tenants on a renewal as I’m still not convinced.

10

I don’t know about illegal, but it’s certainly flawed. Here is what they say about Deposits:

Managing a MyDeposits Deposit During a Renewal

If your deposit is protected with our new deposit provider, MyDeposits, we’ll automatically notify MyDeposits of any tenants who have been added to, or removed from, the tenancy. This means that your deposit record will automatically be updated.

Therein lies the problem. Then they say:

However, as the landlord, you’ll still be responsible for releasing and re-protecting any share of the deposit.

If a Tenant Is Leaving the Tenancy:

If any of the tenants named on the original tenancy agreement are leaving the property you, as the landlord, will need to release their share of the deposit to them.

Before releasing a tenant’s share of the deposit we recommend that you order a Check Out Report to take account of any damage that has occurred during the tenancy period and make any necessary deductions from the existing deposit. Ordering a Check Out Report ensures that all tenants cover their share of damage fairly.

Once you’ve agreed to any deductions for damage you can release the former tenant(s) share of the deposit through your [MyDeposits account]If you’d like further assistance on repaying the deposit please contact MyDeposits directly: businessdevelopment@mydeposits.co.uk 0333 321 9404

If a New Tenant Is Replacing a Former Tenant:

Follow the steps above to release the former tenant’s share of the deposit.

Before the new tenant moves in we’d recommend that you carry out a full inventory inspection of the property. A new inventory at this point gives an accurate record of the state of the property when the new tenant moves in and helps reduce the risk of disputes later.

After everyone’s agreed to the new inventory you should ask the new tenants to pay their share of the deposit. Once you’ve received their share you’ll have 30 days to [protect it] along with the rest of the deposit.

Etc.etc

The first problem is that OR “automatically notify My Deposits of any tenants who have been added to or removed from the tenancy. This means that your deposit record will automatically be updated.” (followed by “However, as the landlord, you’ll still be responsible for releasing and re-protecting any share of the deposit.”)

What is not taken into account is that My Deposits does not split deposits. So if a deposit is released, ALL of it goes back to the lead tenant. That lead tenant is then responsible for passing on her out-going co-tenant’s deposit to her.

[Even if My Deposits DID treat tenant’s deposits separately, because MyD have received notice, as above, to change the names (replace new tenant with out-going tenant), the out-going tenant is wiped from the record before any release can take place, so there’s no longer any ex-tenant to return a deposit to.]

I called My Deposits. They said the existing ‘lead’ tenant and the ‘new’ tenant deposits were now both protected. I said the new tenant hasn’t paid a deposit yet, even though he’s named on the Certificate already.

They said he could pay his deposit to the out-going tenant.

In other words I did not need to ‘release the deposit’ to the ‘lead tenant’, trust her to pass on the out-going tenant’s deposit, and request and re-register new deposits from her and the new tenant.

I asked MyD if that was legal, and they said it was.

In our particular case, the in-coming tenant is friends with the out-going tenant, so this can be achieved quite straightforwardly, the alternative being me having to ask in-coming for a deposit and see that this went to the out-going, rather than the more complicated path suggested by OR. Not that I wouldn’t trust the existing tenant to return her friend’s deposit, but what a load of faff to deal with when she’s about to negotiate changes to utility bills with in-coming, among other things.

I’ve seen a couple of your other posts, David, you are a stickler for legalities, which is great. The issue would be that the new tenant would obviously like a contract. Otherwise, we were all on a rolling contract (until the out-going got on a course at Manchester). The Renewal process certainly allowed this.

And I can also see that Open Rent’s Renewal process tries to cover both landlord and tenant against dispute with regards to deposit, with particular attention to Inventory.

But it seems glaringly obvious they don’t account for the fact that MyDeposits does not consider separate deposits that contribute to what you might call a ‘joint tenancy’ and prefers to have a lead tenant responsible for everything, eg having one person named responsible for the entire deposit . That is surely a problem with the government scheme? Or is that normal?

It’s simply not possible to release the deposit of a non-lead tenant via My Deposits.

So, with the info provided by Open Rent, it is not an easy process to figure out – as why would I try to collect a deposit from someone who’s already named on the Protection Certificate? Why would I try to release a deposit from someone who no longer exists?

The fact that we had thought of a way round it, for the new tenant to forward their deposit to the ex-tenant, is not a concept suggested by Open Rent, perhaps because it doesn’t ‘sound’ legal.

MyD’s initial response was to ask Open Rent and eventually gave the advice above, but when OR finally replied to my queries (after I’d already called MyD - hanging on the phone for bloody ages) they said “call My Deposits”.

Obviously I’ve relayed my dissatisfaction to Lisa, one of several Open Rent operators all of us have spoken to in the last two days. My ‘lead’ tenant was told she had been “escalated to a landlord specialist” when making the same enquiries as me. I didn’t get any escalation, just the usual inadequate links.

11

Btw we’re going ahead with the Renewal, I hope.

Regardless of the bureaucratic stuff Open Rent has advised, when they have already usurped it and made it unworkable.

12

I would stand by my earlier post that the OR process must create a new tenancy for everyone or attempt some kind of assignment or it wont be legally compliant. It is not legally possible to just add or subtract a tenant to/from an existing periodic tenancy.

Certainly its possible to get into a real mess with the deposit when attempting to change tenants and given the severity of the penalties for even a minor technical breach of the deposit legislation, its not something I would trust to a third party.

I’m not familiar with Mydeposits as I use DPS. I have protected deposits individually on a joint tenancy in the past and I believe that this is perfectly legal, just not encouraged by the schemes. Its also worth saying that you cant necessarily rely on deposit scheme staff to give you a correct interpretation of the law. Ive certainly had duff advice from DPS operators in the past.