The Rental Housing Act stipulates how the rental deposit should be dealt with on termination of the lease agreement. It is required that an exit inspection be arranged within seven days after the tenant vacated the rental property. Should one of the parties fail to attend the arranged inspection, the other party is allowed to proceed to inspect the property on their own and compile a list of damages to the property, this list will then be sufficient proof to deduct such damages from the deposit. These damages are then quantified, usually by obtaining quotations from two or three service providers, and deducted from the deposit. The remainder of the deposit must then be refunded to the tenant within fourteen days.
The situation often arises where a lease agreement is concluded and a legally binding contract comes into being, the deposit is paid, but shortly before the lessee can take occupation of the property the lease agreement is cancelled by the lessee.
The question now is who is entitled to receive the deposit? Unfortunately the answer will differ from case to case and each situation should be assessed individually. In the first scenario the lessee cancels the agreement at such a time that the landlord cannot secure a new tenant, which will result in a loss of income. In this case the landlord will have the right to receive the deposit as a reasonable cancellation fee, as contemplated in the Consumer Protection Act since he reserved the property for that lessee. If there was an estate agent who placed the lessee, the estate agent will be allowed to receive pro rata commission from the deposit, for the placement. This will not be a full placement fee, but a reasonable fee to compensate the agent for the services rendered. Therefore in this case the deposit will be divided between the estate agent and the landlord.
The second scenario will be where the landlord is able to secure a new tenant in time and will not suffer loss of income. In a case like this the landlord are not entitled to receive the deposit or a part thereof since no damages where suffered and there is no need to receive a cancellation fee. Should the landlord withhold the deposit or part thereof in a case like this, it will be undue enrichment in favour of the landlord. If however, an estate agent was involved and commission is payable, the estate agent is allowed to receive the reasonable placement commission from the deposit. If the landlord paid the commission for the placement to the agent the landlord will be allowed to receive the amount paid to the estate agent from the deposit. The remainder of the deposit will have to be refunded to the tenant.