After the introduction of Tenancy Deposit Protection agents are required, where they are holding deposits, to do so as a stakeholder. We have noticed that on the Helpline there is still some confusion about what this actually means.
The case of Manzanilla Limited v. Corton Property and Investments Limited; John Maciver (Southport) Limited; Rootbrights Limited and Halliwell Landau (a firm)  EWCA Civ 942, sets out the position of a stakeholder very clearly:
Where a stakeholder is involved, there are normally two separate contracts to be considered. There is first the bilateral contract between the two principals, the landlord and tenant in our case, which contemplates two possible alternative future events and by which the parties agree to pay a sum of money to a stakeholder to abide the happening of one or other of them. In the case of a tenancy agreement, the relevant event would be the failure to maintain the Premises for the duration of the agreement or to pay any costs associated with the occupation of the Premises, such as utility bills. The second contract is the tripartite contract which results from the deposit of the money with the agent as stakeholder on terms that he is to keep it until one or other of the relevant events happens and then pay it to one or other of the parties accordingly. The agent as stakeholder is a party to the second contract but not the first. The agent’s rights and obligations are not normally expressly spelled out. They are implicit in the transaction itself, and must be discovered, not by implying terms, but by analysing the relationship of the parties which arises from the deposit of the money.
The following propositions emerge from the authorities:
- The relationship between the stakeholder and the landlord and tenant is a contractual one. The relationship is that of debtor and creditor, and is similar to that between a banker and his customer.
- An agent is normally entitled to retain the interest on the money. This is usually described as his reward for holding the money. This right may be excluded by special arrangement, usually within the tenancy agreement
- Until the event which the stakeholder holds the money against happens, the agent holds the money to the order of both the landlord and tenant and is bound to pay it (strictly speaking an equivalent sum) to them or as they may jointly direct.
- Subject to the above, the agent is bound to await the happening of the event and then to pay the money to one or other of the parties according to the event. For a lettings agent this event will usually be the end of the tenancy and an agreement between the parties as to what should happen to the money, the decision of a Court, or a request from an approved TDPS to pay the money to them to await dispute resolution. The money is payable to the party entitled on demand, and if the agent fails to pay in accordance with a proper demand he is liable for interest from the date of the demand.
- If the occurrence of the event is disputed, the agent cannot safely pay either party, for if he mistakenly pays the party not entitled the payment will not discharge his liability to the other. In these circumstances he may (i) interplead and pay the money into Court; (ii) retain the money pending the resolution of the dispute; or (iii) take the risk of paying one party. The choice is entirely his.
- If he takes the second course, he may notify the parties that he is content to await the outcome of the dispute. There is then no need to join him in any proceedings which are taken to resolve it. If he is not joined, the Court cannot order the money to be paid to the successful party. All it can do is to declare that the successful party is entitled to give a good receipt for the money. In practice this is now unnecessary as the agent will normally be required to pay the money to an approved TDPS who will hold it pending the outcome of any Court action.
- If the agent is not content to wait for the outcome of the proceedings, he may be joined in to those proceedings in order to compel him.
Whilst the position seems clear in light of the above it is strongly recommended that the agent advises both the landlord and the tenant what the stakeholder principle entails and assures them that no action will be taken until the dispute between them is resolved.
We find more often than not that agents become embroiled in dilapidation disputes at the end of a tenancy and to the frustration of landlords fail to refer the matter to either the appropriate TDPS in the correct time period or advise the parties to seek legal advice. Whilst some agents perseverance is commendable sometimes walking away and allowing the landlord and tenant to talk to each other is the better option.