Deposit Protection Regulation
If tenants paid deposits on or after 6th April 2007, where the combined annual rent is less than £25,000, the deposit will be protected by new rules. These state that you must put deposits in a tenancy deposit protection scheme. At the end of the tenancy, tenants are guaranteed to get deposits back within 10 days, so long as all conditions have been met by both parties.
Despite the fact that you are not legally required to ask for a deposit, here are two reasons why you should ask for one:
1) Holding Deposits are used to guarantee that the individual will take up the tenancy and you or an agent is guaranteeing to let it to them. Holding deposits shouldn't be an added cost.
2) Safety. Although there is legally no limit on the amount that can be charged, you or letting agents usually ask for the equivalent of one months rent, with agencies usually charging six weeks. A deposit gives you some security against any financial loss you may suffer as a result of damage caused by tenants.
Alternative to asking for a deposit:
1. You can seek a guarantor. This can be attractive, even if taking deposit, but should be essential if not. The guarantor should be a home owner, liable for any financial loss. This arrangement must be specifically built into the tenancy agreement.
2. You could grant an assured tenancy, thus fall outside a scheme. Under this arrangement, you can never give two months notice and the tenant could live in the property for life. This option is ideally suited to student let's as it is very unlikely they will stay beyond the term - and if they did, they are liable to pay full market rate.
3. Tenants may be able to secure a property without a deposit, there may be a "deposit guarantee scheme" in that area that can help tenants find accommodation. Seek advice on this issue.
There are two types of deposit protection schemes available for you and letting agents (insurance-based schemes and custodial schemes).
The three most popular options:
1. ‘The Deposit Protection Service' is the most popular. The deposit must be held by the scheme administrator for the duration of the tenancy. The Custodial Scheme offers free usage and interest to you / tenant.
2. ‘My Deposits' is a pay as you go insurance based option, which allows you to hold the deposit, but you must pay to use the scheme. You are advised to ensure that the scheme does not cost more than the interest that is recoverable on a held deposit.
3. ‘The Tenancy Deposit Scheme' is another insurance based option, popular with multi-property letting agencies, priced on a per office rather than per property basis.
The 2007 law has implications for tenancy agreements. Entering an extra paragraph / clause in an original agreement may not be enough. For example, tenants are entitled to know, and YOU must provide:
a) Full contact details of the scheme administrator
b) All operating information of the provisions of the scheme
c) Procedures for payment and repayment of the deposit
d) Procedures that apply in case either you or the tenant is not contactable when the tenancy ends
e) Procedures for dispute over the deposit
f) The scheme's facilities for dispute resolution without litigation
g) Full details of the tenancy in respect of which this deposit is concerned-
- Deposit amount
- Tenancy property address
- Full contact details of yourself
- Full contact details of tenant, including those for the purpose of contacting the tenant when the tenancy ends
- Full contact details of any other relevant person
- Circumstances and terms relating to the retention of part or all of the deposit.
If you don't agree on how much you should get back, there is a free service which you and your landlord can use to help sort out your disagreement. Minimise the potential for disagreement at the start of the tenancy by getting clarification of exactly what the deposit covers (e.g. whether it covers unpaid rent and/or loss caused by any damage.
Deposits - a tenant's rights.
- You should not deduct money from a deposit to cover bills unless you suffer financial loss, for example, in having to pay for the installation of a pre-payment meter or, to reconnect services.
- Wear & tear. You would be expected to redecorate and replace carpets and furnishings every few years, recovering the cost through the rent you charge; tenants should only be held liable for any damage that creates additional costs to you.
- Tenants are only liable for "like for like". Therefore, tenants are only liable for the value of replacing any damaged items.
- If you do not protect a deposit by using a tenancy deposit protection scheme, or will not tell the tenant which scheme you are using, tenants can take you to court. The court will either order you to pay back the deposit or to pay it into one of the schemes. It will also order you to pay the tenant three times the amount of the deposit as a fine. Tenants thinking about taking you to court, should get advice, but be aware - you forfeit all your rights if you do not use a tenancy deposit scheme.
- If a deposit was paid before 6 April 2007 whereby the tenancy was renewed after that date, the legal situation is unclear. It is important, however, to remember that the new deposit laws were introduced to safeguard deposits, so the question must be asked - how are you safeguarding deposits taken pre - 6 April 2007?