The Position of the Stakeholder

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) [1996] 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:

  1. 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.
  2. 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
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.


  • Jamie 27th April 2011 at 9:42 am

    “…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.”

    Assuming ‘the event’ is the tenency end, what happens if the landlord goes ‘self-managed’ during the term? Presumably it’s acceptable to hand the deposit to the landlord provided the tenant agrees, but does the agent have any responsibility to ensure the landlord registers it with a protection scheme (where required)?

    What if the tenant does not agree to the agent handing it over to the landlord? Would the agent need to continue holding the deposit until the end of the tenancy even though they are no longer have a contract with the landlord?

    • PainSmith 27th April 2011 at 11:05 am

      If the deposit is handed to the agent and the landlord decides to manage and requests the deposit, the agent does not need the tenants consent. BUT, what the agent MUST do to safeguard their position is demand confirmation that the landlord has registered the deposit with a scheme and then the agent can hand it over. The agent should not hand it over in the absence of this confirmation or they are risking a claim for 3 times the amount.

  • Jamie 16th June 2011 at 2:24 pm

    Sounds reasonable, but in practice, if the landlord has to send the actual deposit monies to a custodial scheme, how can they register the deposit ‘before’ the agent is willing to hand it over?

    • PainSmith 21st June 2011 at 9:49 pm

      The same amount of monies can be registered with the scheme while you wait for the agent to hand the money over. You do not need to have the actual deposit monies in your hand before you register it.

  • lore 11th July 2011 at 5:33 pm

    I am a landlord in dispute with an ex tenant (period of tenancy was from 21 feb 10 – 21 aug 10 – ie pre TDPS?).

    Given the state of the property, when she left, I wished to make deductions of c. £3200 from a deposit of £4200 (held by the letting agents as a stakeholder deposit).

    Negotiations went nowhere and before I could issue a claim the ex tenant sued me, for the return of her deposit (i’m not sure her claim was properly formulated but the court allowed it to proceed). I counterclaimed for the deductions.

    I have received a letter from the court that her claim has now been struck out (non-payment of court fees).

    I have asked the agents to now release funds from the deposit to pay for the deductions.

    They have refused saying, as it’s a stakeholder deposit, they still need the ex tenant’s agreement – which is not forthcoming.

    Is this correct, what can i do to recover my losses?

    • PainSmith 12th July 2011 at 8:52 am

      I am afraid you do need consent. You can continue with your counterclaim because although her claim has been struck out your counterclaim has not so contact the court.

  • lore 12th July 2011 at 11:29 am

    I have tried speaking to the Court – but assistance was “limited.”

    Given that she has declined mediation, I think this is merely a tactic by the ex tenant to place the burden (time and money) of litigation on my shoulders (Court fees, preparing bundles [there is significant correspondence] etc]).

    Given that her claim has been struck out (could she reinstate it?) and if I did not pursue the counterclaim, what would happen to the deposit?

    [NB. It may be cost effective for me to have a position where the deposit was “in limbo” as I could then try and open negotiations with her – would this be permissible?]

    Many thanks

    • PainSmith 12th July 2011 at 12:33 pm

      Where the deposit is held as stakeholder until an agreement is reached on the deductions the money will be held by the agent so yes you can negotiate further. With regards to the matter being re-instated she can do this by making an application but it is for the court to determine whether they are willing to do this or not. We do not really advise on the practise and procedure of such matters therefore if you need assisstance we strongly recommend that you seek advise from the citizens advise bureau or a solicitor.

  • lore 12th July 2011 at 12:48 pm

    Don’ know how you are able to offer this free advice but … many, many thanks.

  • Jamie 5th August 2011 at 4:30 pm

    You said in your first comment that:

    “If the deposit is handed to the agent and the landlord decides to manage and requests the deposit, the agent does not need the tenants consent.”

    However, the following paragraph in the Property Ombudsman Code of Practice seems to contradict this:

    “Where your contractual arrangement with your client [the landlord] is terminated, and the relevant managed property is still tenanted, you must promptly tell the tenants, in writing, of the change in arrangements, including where it is
    proposed the deposit will be held. In such circumstances, the written authority of the tenant(s) to release their
    deposit to a third party must be obtained.”

    • PainSmith 8th August 2011 at 4:33 pm

      It does say in some circumstances and this confuses the matter somewhat. As long as the deposit is going to be registered we maintain that consent is not required.

  • Jamie 5th August 2011 at 4:40 pm

    (However, I appreciate that you’re looking at it from a legal perspective whereas the Property Ombudsman Scheme is recommended best practice).

  • Brian 21st November 2011 at 1:42 pm

    I find the reference to the “relationship … of debtor and creditor” in the judgment extract at the top a bit confusing. I thought the relationship would be trustee and beneficiary – or am I getting confused?

    Our RE agent uses one of the insured schemes (TDS) rather than custodial scheme and my question is, is the money held as a tenant’s deposit legally separate from the agents own funds, or is it available to general creditor’s of the agent’s business? Neither the tenant nor the landlord would be too happy if the agent were to become insolvent and find (for the tenant) their money has disappeared or (for the landlord) there isn’t any buffer to cover damage/rent arrears.

    • PainSmith 22nd November 2011 at 10:31 pm

      Deposit monies are held in a client account and do not therefore form part of the agents assets or funds and if an agent is insolvent the trustee should refund deposit to those that have paid or contact landlords and take it from there. The deposit should not be held in the business account of the agent under any circumstances because yes the agent is holding the funds on trust.

  • Srdjan 26th November 2012 at 12:33 pm

    In my case, as a Landlord, I had a Tenancy Agreement via Letting Agency with Ltd Company who has breached the Tenancy Agreement and cancelled the tenancy before the term. The Letting agency uses one of TDS scheme so Tenant Deposit is held there.
    The LA asked the Tenant to confirm that they agree for the Deposit to be transferred in full to Landlord account due to unpaid fees etc. but there was no answer from them at all.

    In the mean time the Ltd Company filed for striking off with Companies House and I believe that they no longer are at the same address not we are able to contact them at any given contacts.
    What are my options as a Landlord asking for the Deposit held in and paid into account.

    • PainSmith 12th December 2012 at 1:40 pm

      We suggest you discuss with your agents who are holding the deposit and who should be able to explain the process.

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