Any tenancy agreement should include a clause that specifies how
the deposit is to be held, who by and who is entitled to any
interest which may be earned on it. (Where a deposit is held by a
third party as stakeholder, case law has determined that that party
is entitled to retain any interest accrued). The agreement should
include details of how the deposit will be dealt with at the end of
tenancy, including the circumstances or criteria or procedure for
its refund.
The deposit remains the tenants' money at all times during the
tenancy and should not be used to subsidise either the landlord's
or the agent's outgoings or expenditure other than by specific
mutual agreement (with the tenant) or by express provision of a
clause in the tenancy agreement.
A deposit held by an agent "as agent for the landlord" has,
ultimately, to be refunded or apportioned on the landlord's
instructions or by the agent under his authority as a contracted
Agent on behalf of, a Principal (the landlord client). Every
reasonable endeavour should be made by the agent to ensure that
this process is fair and equitable and supported by appropriate
documentation so that a landlord (or his agent) does not take
unlawful advantage.
A deposit held by an agent "as stakeholder between the parties" is
being held in a quasi-trustee position on behalf of both parties.
Whenever possible the agreement of both parties should be obtained
(in writing) as to how the deposit is to be disbursed. In the event
of a dispute the agent as stakeholder is entitled to retain the
deposit (or the disputed part of it) until the dispute is settled.
Every reasonable endeavour should be made to ensure that this
process is seen to be fair and equitable and supported by
appropriate documentation. Ideally, the relevant deposit clause of
the tenancy agreement should include a provision or options for an
unresolved dispute to be referred to a Dispute Resolution Scheme,
such as or Expert Adjudication or Arbitration. Ultimately however,
whilst potentially risky*(see below), if after exhaustive attempts
to resolve the dispute equitably it is considered by the
stakeholder that one party is taking a wholly unreasonable position
and it would thus be unfair to the other party to retain the
deposit, an agent could advise both parties and distribute the
deposit as the agent as stakeholder considers appropriate, taking
account of, and supported by, appropriate evidence. (*Important.
This could lead to legal action directly against the agent by a
dissatisfied party who can prove that the agent, as "trustee", has
acted