We are renting a house and have had to pay rent and a deposit in advance. The tenancy agreement says we must pay the deposit to the landlord’s letting agent as a “stakeholder”. We are uncomfortable about the landlord’s agent holding our deposit, although the agent has promised not to pay our money over to the landlord. But what exactly is a “stakeholder”?
A stakeholder is a person who receives deposit money from two parties and promises to repay it to one or other of them on the occurrence of a specified event. Stakeholders are encountered both in the case of property purchases and letting agreements, where the buyer or tenant have to pay a deposit. The stakeholder is usually a professional person, such as a solicitor or an estate agent, although in theory the parties can nominate anyone to hold the money.
Stakeholder agreements were analysed in some detail by the Court of Appeal in the 1996 case of Manzanilla v Corton Properties. The stakeholder holds the deposit in accordance with the terms of the relevant agreement and (at least in theory) it should be indifferent about who the money is eventually paid to. The stakeholder can only release the deposit with the express agreement of both parties or by following the steps set out in the contract.
In the case of tenancy deposits, these have to be registered with one of the three official tenancy deposit schemes. The tenancy agreement will invariably require the stakeholder to follow the rules of the relevant scheme. These rules will explain in some detail what the stakeholder must do with the deposit money while any dispute between the landlord and the tenant is sorted out. In the meantime, the stakeholder can generally keep any interest earned. The fact that your deposit will be held by a stakeholder therefore gives you important protection in the event of any dispute with the landlord.
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The writer is a barrister at Tanfield Chambers. E-mail your questions to: brief.encounter@thetimes.co.uk