Tenancy Deposit Protection: What is a Stakeholder?

Where a stakeholder is involved, there are normally two separate contracts to be considered.

What are the contractual considerations?

In the situation that a stakeholder is involved in this process, there is a first contract set out, in our case, between the landlord and tenant. They both agree to pay a sum of money to a stakeholder, protecting the landlord against any damage to their property, and the tenant if they are being charged for things that are unreasonable.

The second contract set out is three-way, and is a result of depositing the money with the stakeholder on the terms that they are to keep the deposit until reimbursing either one of the parties. 

What do the authorities say? 

The authorities say the following:

  1. The three-way contractual relationship between the stakeholder, landlord, and tenant is one that outlines a debtor and creditor.

  2. Any interest made on the money is typically kept by the agent as a reward for holding the money safely. This entitlement however, may be excluded depending on what it says in the tenancy agreement.

  3. Until the stakeholder is required to release the money to either one of the parties, the agent will hold the money to the order of the landlord and the tenant, and is bound to pay an equivalent sum to them. 

  4. According to the outcome, landlord deductions or the tenant getting their deposit back, the agent is bound to wait until one of these events happens before they can release the money. Typically, this happens at the end of the tenancy and there is usually an agreement between the parties about what should happen to the money. Failing this, a court decision, or a TDPS request to pay them and resolve a dispute. If the agent fails to pay, then they are liable for any interest.

  5. If disputed, the agent can’t make a safe decision on which party they believe the amount should be given to. In this event, the stakeholder may pay the money to the court, keep the money until the dispute is resolved, or take the risk of only paying one party, which is done at their own risk.

  6. If the stakeholder opts to wait until the dispute is resolved, they do not need to be involved in any proceedings which may take place to resolve the issue. In this event if they are not joined then the court is unable to order the money to be paid to the successful party. 

  7. If the agent decides that they do not want to wait until a resolution has been reached, they may be joined in those proceedings.

What happens in the event of a dispute?

It is recommended that the stakeholder advises the landlord and tenant on how this system works, and that action will only be taken once the dispute is resolved.

Typically, the disputes that arise at the end of a tenancy are around dilapidation and damage, with landlords failing to refer the issues to a TDPS quickly enough. In this case, sometimes the best thing that can happen is to have the landlord and the tenant discuss the dispute, rather than involve the agent and dragging on the process.

To find out more, or if you have any questions, please get in touch with us at 0191 243 1000 or drop us an email at enquiries@seekersproperty.co.uk