Are You Protecting Your Tenants Deposits?
Since April 2007 the vast majority of tenant's deposits have fallen under new legislation introduced in the Housing Act 2004 - and therefore are required to be protected in an authorised tenancy deposit scheme.
The aim was to safeguard the deposit so that a tenant could get it back when entitled, but also to provide a mechanism for resolving disputes in a fair and inexpensive manner.
The really important things for landlords to be aware of is the need for good documentation and the real consequence of non-compliance.
Background to the Legislation:-
Essentially the legislation tackled the problems caused at the end of a tenancy when landlords refused to refund tenants deposits that they were genuinely entitled to. It appears that far too many landlords sought to claim excessive amounts for minor or non-existent damages, or simply failed to return a deposit altogether. Tenants had little choice but to go to court to seek compensation or simply write it off as bad experience.
The introduction of the registration schemes in 2007 sought to provide tenants with a safety net against unscrupulous landlords and a means to mediate in the event of a dispute.
There are currently three schemes available (two insurance based and one custodial) that enable landlords to register deposits.
Not all tenancies are covered, but any Assured Shorthold Tenancy with a rental of less then £25,000 per annum will be. In North Wales this is bound to be almost all tenancies.
Important Aspects for Landlords:-
It appears that the deposit scheme legislation is generally in favour of the tenant unless evidence is available to validate any claims made by the landlord. For example, without an inventory and photographs there is little chance of winning a claim for a damaged carpet if there is no evidence to show the condition of the carpet to start with. This makes detailed inventories essential!
Quite simply, if you take a deposit and do not register it there are two aspects to be aware of.
Firstly, the tenant can apply to the court for a compensation award which is set at three times the deposit value. For example, a deposit of £600.00 which is not registered could mean paying compensation to the tenant of £1800.00 + costs. My understanding is that it is unlikely that this would be imposed for late registration, but is aimed at dealing with landlords who try and flout the law.
Secondly, where a deposit is not registered you may find it difficult to regain possession of the property as the Courts may not enforce a normally mandatory section 21 notice.
Landlords beware, choosing not to register a deposit could not only cost you a hefty compensation claim but also mean that you can't easily evict a tenant even if they are not paying rent!
Anyone also considering taking more rent in advance instead of a deposit may fall foul of the law as well. In the case "Da Costa v Pinter" the tenant was awarded the return of the deposit plus an award of three times the deposit (in this case £6750) because it was clearly demonstrated that the deposit had not been registered. The decision clearly hints that anyone taking a deposit and describing it as something else (advance rent etc) is not in the spirit of the legislation and therefore is unlikely to be tolerated.
2nd January 2013
Martin Adshead has been a successful portfolio landlord for over fifteen years. REB Letting Agency was established in June 2002. He holds an advanced qualification - Certificate in Residential Letting and Property Management - and is a Member of the Association of Residential Letting Agents (MARLA). Outside of work he enjoys scuba diving (Instructor Trainer) skiing, motorcycling and sailing.