Deposit stolen by Estate Agent - who is liable?

OpenRent Chat
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Hi - looking for some guidance before I get some official legal advice.

I originally rented my property out through an Estate Agents - the tenant and I decided to go direct after the initial 6 month period (the Agent had made a few blunders on miscommunications). I put in place a Fixed Term Assured Shorthold Tenancy Agreement.

The complication - new contract signed with tenant, included the standard deposit term/clause, however the deposit was still with the Agent/never transferred to the Tenant nor myself.

I chased up the Agent for the deposit to be transferred - after a long duration of no reply, I asked the Tenant what the status was. He confirmed that he had emailed an approval to the deposit protection scheme to release the deposit. The Agent received it.

The Agent (Director) has left the business/premises and is no longer operating, his previous business partner has set up a new business in a different (but similar) name (same telephone number) and confirmed he had committed fraud - i.e. he kept the deposit and is no longer contactable. I received a ā€˜return to senderā€™ letter from the business address.

So the question is - who is liable for the lost deposit as the end of tenancy inspection resulted in the Tenant owing more than the deposit value to me.

The Tenantā€™s response to the end of tenancy inspection report is denial of the damage, and therefore he is requesting the deposit back from me (never received) and he has also pointed out that if I had not protected the deposit I am exposed to the penalty (3 times the deposit amount).

I have emails between myself and the Tenant detailing I do not have the deposit and am trying to receive it from then Agent.

I feel my only ā€˜exposureā€™ is the contract I signed with him implies I have received the deposit - however I then have the emails evidencing that I havenā€™t. Thus far, he hasnā€™t claimed/said outright that he transferred the deposit to me. (Which would be false).

I wasnā€™t made aware that the Tenant had provided the approval to release the deposit.
The original deposit and contract was between the Tenant and the Agent - therefore is it accurate to say it is the Tenantā€™s responsibility? And my claim on him for the inspection results is independent to his contract with the Agent, and thus valid? (I have been very reasonable with the claim in that I havenā€™t pursued it for a year, yet he is now chasing me for the deposit and threatening legal action).

Your feedback / guidance would be appreciated on this complex matter.

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My guess would be that the issue devolves to who the agentā€™s principal is - an agent carries the power to bind their principal by their actions.
Who has signed (& what is in) the agency agreement(s) ? If the agency was appointed by and acting on behalf of yourself, I believe in effect you are responsible for the absence of the deposit.
Personally, I never go near agencies for letting. There should not be two agreements (one for tenant & agent, one for landlord & agent) involving a singular letting and a conflict of interest on the part of the agent (but it wouldnā€™t surprise me if this happens). Safeguarding obligations for the deposit, once paid by the tenant, should logically reside with the landlord ā€¦

1 Like
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Thank you, really appreciate it; not the answer I was hoping for but clarifies the situation and confirms my exposure. Best regards.

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Sadly whatever an agent does ,the buck stops with the landlord

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Regarding the fact I never protected the deposit under my contract with the Tenant, based on the fact I never received the deposit, am I further exposed to the penalty?

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I donā€™t understand what you mean by the tenant releasing the deposit to the agent. This only normally happens if the tenant agrees that the agent/landlord can keep the deposit as compensation for some loss, otherwise why wouldnā€™t they have asked for it all to be returned to them or to be transferred to your deposit scheme? You should find out more details from the tenant and the deposit scheme about what exactly the tenant authorised. If they have authorised the agent to keep the deposit in the mistaken belief that the agent would then pass it across to you or them, then they have no recourse to anyone as it was their mistake.

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Hi David122

This is the DPS email the Tenant forwarded on to me after I had no response from the Agent of the deposit status, and after I managed to speak to DPS who confirmed that the money had been released to the Agent following approval from the Tenant (I had no knowledge of this):

Deposit ID: xxxxxxxx

Dear TENANT

The agent/landlord has started a repayment request for the tenancy at [ADDRESS] we now require you to review this proposal and confirm whether you agree with the distribution of funds.

Your repayment ID for this deposit is:
Xxxxx
You will need the deposit ID shown above and your unique repayment ID to log in and submit your response to the request.

In order to complete transactions online, please visit [www.depositprotection.com]
Select ā€˜Log in nowā€™ and enter the deposit ID and your unique repayment ID in the tenant login prompt.

If you reject the proposal, we will notify the agent/landlord, and either party may then request a further repayment request online to agree how the deposit should be repaid. If there is a disputed amount, both parties will need to resolve the dispute either via our Alternative Dispute Resolution (ADR) Service or via the Courts.

Yours sincerely,

The DPS Support Team

ā€¦

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If the amount requested by the agent was the full deposit, then the tenant has no recourse. They chose to award it all to the agent. Its not a breach of the deposit regulations. The tenant may try to persuade a court that they were swindled into doing so by a rogue agent but they would have a hard time of it given their actions, and I canā€™t see how you can be held accountable at all.

If the amount the tenant agreed to award the agent was less than the full deposit, then that amount is presumably somewhere and you may have some liability in relation to it.

If the deposit was not originally properly protected or the protection lapsed and the tenant has evidence of this, then they might apply for a penalty against you.

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Thanksā€¦ it was the full amount transferred to the Agent from DPS.

The Agent protected the full deposit for the duration of the initial Tenancy Agreement, and then it was transferred to them shortly after I put in place a direct Tenancy Agreement, which they then never forwarded on. I had no knowledge of the deposit not being protected / being held by the Agent. I should have been more proactive in this.

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@ bc70b9aee0139f6f9850

Could you pls clarify - are you in dispute with your tenant ā€¦
(i) as to the amount due to you in respect of damage/depredations; or
(ii) the fact that the deposit has been returned to your (agentā€™s) care by DPS with a view to it underwriting a further (new) tenancy ?

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Hi Nicholas

(i)The end of tenancy inspection resulted in me claiming that more than the deposit was due to bring the house back to the original standard (excluding fair wear and tear). Photos presented at start of tenancy to end of tenancy as a comparison.
The Tenant has rejected / challenged all of my findings. (I am comfortable with my position in that I have photographic evidence at the start of the agreement and at the end).
He is standing his ground, denying any damage and demanding the deposit be returned to him. Because I have assumed he would be liable for the ā€˜lostā€™ deposit, I have claimed for the full amount to be paid, I.e. I have not made a deduction for the deposit value, as I donā€™t have this.

(ii) not discussed explicitly, however I believe this will be his stance and reasoning for releasing the deposit from DPS to the Agent, with the expectation it would then be transferred to my care. A new Tenancy Agreement was put into place between myself and the Tenant, which implies I am in receipt of a deposit as I detailed the deposit value in the agreement - as it existed, but just hadnā€™t been transferred to me.

Would appreciate your thoughts.

Timing of all of this is 1 year ago, he has now out of the blue progressed me for the deposit. I had theoretically written off the loss - i.e. I hadnā€™t progressed my claim on him for the inspection findings.

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Do note - Iā€™m not qualified to offer professional advice here, so regard the following at your own risk.

Important is to go back to the operative agency agreement(s) - who was the agent acting for (ā€œThe original deposit and contract was between the Tenant and the Agent ā€¦ā€) and what was their remit ? For a tenant, transferring to your agent would be transferring to you.

Deposit protection regulations would be irrelevant here both to the terminated tenancy - since the agent apparently had arranged settlement with the tenantā€™s agreement - and the subsequent tenancy - since apparently no deposit has been taken, although ā€¦

It looks a little unusual that you neither pursued the agency for the amount of the deposit (e.g. via the abscondedā€™s partner) nor followed through with maintenance of the contractual deposit requirement for the subsequent tenancy. Perhaps there was an implied undertaking between the tenant and yourself that some sort of financial transfer between deposit accounts was intended for the subsequent tenancy (?).

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Again, I agree with Nicholas16 that it may depend on the context. If there are emails or text messages between you and the tenant that support the tenants assertion that you were involved in the decision to transfer the deposit to the agent, then the tenant may have a case. I think I would probably just cease all contact for the moment and not pursue the claim for damages against the tenant. Hopefully the tenant will then just go away, but if they come back to you with any details of a court case against you or a demand from a no-win-no fee lawyer then I would immediately seek legal advice and supply your solicitor with all the correspondence related to the case.