Last week we looked at the Housing Act 1988 and what it means for a landlord. This week we are looking at deposits:
Why Should I Protect My Tenants’ Deposits And How Do I Go About Doing It
Landlords are today required, by law, to register a tenant’s deposit with one of the government-approved deposit schemes if their property is let using an assured shorthold tenancy agreement that started after April 2007. It is solely the landlord’s responsibility to ensure the deposit is protected, irrespective of whether or not you use a letting agent.
The three government backed schemes in England and Wales are:
- The Deposit Protection Service. (DPS) This offers both ‘custodial’ and ‘insured’ schemes. A custodial scheme is where you physically pay the money over to the scheme, until the end of the tenancy where the landlord and tenant agree deductions and these are then processed by the scheme. The insured scheme is where the agent or landlord keep the deposit but pay a fee to the scheme to insure the deposit.
- MyDeposits. Insured scheme only at present, although they are due to begin offering a custodial scheme in the next few months.
- Tenancy Deposit Scheme. (TDS) Insured scheme only.
The rules and regulations for these schemes, along with the role and necessity of a tenant deposit can be confusing for landlords and so here we have covered some of the more frequently asked questions.
Why do I need to take a deposit?
It is not a legal requirement to take a deposit, but to let your property without one is extremely risky. With no deposit, you run the risk of operating at a loss if your tenants cause damage to the property or they accrue rent arrears during the tenancy and then leave without paying.
How much deposit should be taken?
Tenants will expect to have to pay a deposit for a rental property. A typical deposit is usually between one month to 1.5 months rent, with an increased amount often taken from the tenant if the property is being let with pets. If a tenant leaves without paying the last month’s rent then you want to ensure you have enough to cover that, as well as some for any damage or cleaning that needs to be carried out after the tenant has vacated the property.
Why was the tenancy deposit scheme introduced?
Tenancy Deposit Protection (TDP) was rolled out as part of the Housing Act 2004. It was introduced as part of a whole raft of measures intended to raise standards across the private rental sector under the Act. The intention was to ensure that deposits were fairly and consistently handled, so that tenants who met the terms of the agreement and who looked after the property during their tenancy, received their money back at the end of the end of the rental. As a final measure the TDP put in place a dispute resolution service, to aim to quickly resolve any disagreements and reach a satisfactory solution for all those involved.
What happens if I don’t protect the deposit?
As a landlord you have a legal obligation to protect the deposit, so long as the property is let using an assured shorthold tenancy agreement that started after April 2007, or was renewed after April 2007. If you fail to do so within 30 days of the commencement of the tenancy, you could face the following consequences:
- Your tenant could claim three times the deposit amount, plus the return of the deposit
- You will not be able to serve a valid Section 21 notice of the Housing Act 2004. This could mean you struggle to regain possession of your property. The only way to resolve this would be to return the deposit in full or with such deductions as you agree with the tenant, or to make a successful application to the county court under Section 214 (1)
- Your tenant will have a defence against any claim made by you for rent arrears
What do I need to do once the deposit is protected?
The deposit you receive must be registered with one of the TDP schemes within 30 days. Within this timeframe you must also provide your tenant with the following information, often referred to as “Prescribed Information”.
- The full address of the rental property
- The sum of the deposit paid
- The deposit scheme that is being used to protect it
- Contact details for the chosen scheme and its associated dispute resolution service
- The name and contact details of any third party involved responsible for paying the deposit, such as the letting agent
- Instructions on how to apply to get the deposit back
- Steps to take if there is a dispute over the deposit
Once the deposit is secured you should ensure that your tenant has copies of any leaflets provided by the scheme – the deposit scheme website will have downloadable content for you to pass on to the tenants – this will often provide much of the information above but you must be prepared to supplement these with any further necessary data.
Informing the tenants of this information is imperative – it is a legal requirement. Failure to comply could lead to prosecution.
Will it cost me money to protect the deposit?
This depends entirely on which scheme you use. Many insured schemes have premium rates attached but there are also free schemes available.
When can I take money from the deposit?
Deductions from the deposit can be made when the tenant fails to uphold their duties as agreed within the tenancy agreement. The most common examples are:
- Cleaning. If the property is left in an unclean condition, but the property was clean when your tenant moved in, then so long as it is stated as such in the tenancy agreement, then you can deduct money for doing this for them, or for the cost of employing professional cleaners.
- Damage to property or contents, or missing items. If the tenants cause damage to the property or its contents then it is their responsibility to replace the items like for like. If they have failed to do so by the time they vacate the property, then you are entitled to deduct a reasonable sum of money to purchase a replacement. Ensure you keep copies of any receipts in case the tenants raise a dispute. Be aware however that items broken or damaged to age or through normal wear and tear are your responsibility and therefore cannot be deducted from the deposit.
- Rent arrears. If your tenant leaves with rent arrears then you are entitled to deduct these from the deposit. If the amount outstanding is more than the deposit then you are advised to start court proceedings in order to recoup the remainder.
There are a lot of guidelines on what you can and can’t claim for, and what percentage you can claim, depending on various factors including length of tenancy, number of people at the property and so on. They are too numerous to list in full but the Deposit Protection Service has a produced a guide for landlords to help in the event of a dispute: https://www.depositprotection.com/documents/a-guide-to-tenancy-deposits-disputes-and-damages.pdf
The most important thing when dealing with deposits, is to ensure you have a comprehensive inventory, signed by the tenants to say you both agree on the condition as stated in the inventory. That way if the tenants are disputing any deductions you propose to make, you will be able to prove to the dispute resolution service, or the courts, that you are entitled to make the suggested deductions. As the money belongs to the tenant, it is down to the landlord to prove they have good reason to make any deductions. A good letting agent will always issue an inventory as a matter of course.
NEXT WEEK: Part 4: Should I let my property furnished or unfurnished?