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Question Title: Set-off
| Question: 62 |
| I manage a property as the agent for a client landlord. Is it acceptable to use surplus rent to pay for damages at the end of the contract? In practice I know this to be common, but is it legal? If the money was paid for one purpose (the rent) can it be used for another without permission?
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| Answer: |
| It is illegal to use surplus rent to pay for damages at the end of the contract, unless the amount of damages AND the payment has been agreed by the tenant. Compensation (set-off) can only occur by pure operation of law, independently of the will of the tenant, if both debts are due - i.e. time of payment has arrived. For the due date to have arrived, the amount of damages must have been agreed either expressly or impliedly (e.g. by silence), but they must be OF THE SAME NATURE. Damages and rent overpaid are certainly not of the same nature, so compensation does not apply. Damage is a troublesome and frequently contentious topic. In management the landlord generally seeks more than reasonable and the erstwhile tenant seeks to pay less than reasonable. Hence the rule for set-off is that damages must be liquidated. As a matter of law, a claim for damages, even if liquidated, cannot be set-off against goods sold and delivered. As always there is a saving grace. Recently, the law relating to payment of mistake and law has been equalised - the payer can get it back in either case. However, the letting agent would be wise to hold on to any payment made by mistake (fact or law), until he is forced to return it, while a claim for damages is proceeding against the tenant. What the letting agent may not do is release the money paid by mistake to his landlord client, or appropriate it to the damages, liquid or illiquid. If he did he is in grave danger of having to account to the tenant personally for the money mis-appropriated !!!
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References:
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Pages:
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Hyperlinks:
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Letting Handbook |
Chapter 3 |
letting-handbook-and-factsheets.html
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For more information, discuss on the Forum
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