Are Holding Deposits & Reference Fees Legal?

Holding Deposits

If you are taking holding deposits and reference fees, is this legal? Letting agents charge a number of different types of fees to tenants, under a variety of names such as:

– “holding deposits”,
– “reference fees”,
– “administration fees”, to name but a few.

The current legal position under the Rent (Scotland) Act 1984 is that it is an offence to charge or receive any premium (over and above rent and a security deposit of no more than two months rent) as a condition of the grant, renewal or continuance of a tenancy.  Therefore, as it stands, all of the fees mentioned above are unlawful premiums.  However, it is common practice for agents to charge such fees, and for tenants to simply pay them to secure the property!

The Scottish Government is proposing to amend the law in relation to premiums and a consultation has been launched.  The consultation puts forward three options:-

  1. To clarify that the definition of a premium as per the 1984 Act is clear, in that anything taken other than rent and a refundable deposit is a premium and therefore unlawful.
  2. To specify categories of sums that are permitted to be charged, with a maximum amount stipulated.
  3. To specify categories of sums that are permitted to be charged where no maximum amount is provided.

The views regarding premiums vary from agent to agent.  Some believe that it is possible to run their business without charging such premiums to tenants, whilst others believe that there are reasonable charges which should be permitted, the most common being fees to cover referencing checks.  A common complaint is that some agents don’t just charge the tenant the cost incurred by them in obtaining a reference from a reference agency, but instead inflate the fee without justification.  Many tenants feel that this is unfair and that more regulation is needed.

The Scottish Government is now seeking your views on these options and you can view the consultation by clicking here. The consultation is open until Monday, 28 May 2012, with the aim that any changes being brought in will be the Summer 2012.

Have you had a bad experience with additional fees, or do you feel strongly that they remain reasonable to enable your business to be viable?  Why don’t you take a few moments to give us your thoughts.

Or if you’re just looking for more information please don’t hesitate to get in touch.

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2 responses to “Are Holding Deposits & Reference Fees Legal?”

  1. Peter says:

    As I understand it, applying a fixed fine on the late payment of rent during a tenancy would also be considered a premium yet Scottish landlords can however apply interest on the duration that rent remains in arrears. Any comments on this?

  2. Fiona says:

    The definition of a “premium” under the Rent (Scotland) Act 1984 includes any fine or other like sum and any other pecuniary consideration in addition to rent. However, this is in connection with the grant, renewal or continuance of the tenancy. Where you have provision in your lease for a fine being levied, or interest charged on late rent, this doesn’t necessarily fall within the 1984 Act definition of a “premium” as such. However, if deemed to be unreasonably high, it could still be deemed to be an unfair contract term. Therefore if any late payment fines or interest on late rent is being provided for in a lease, this should be a reasonable amount and justifiable under the circumstances, otherwise it could be struck out by a court as being unfair.