Deposits and the Localism Act

25 Jun 2014

Becoming a private landlord has become a second income generator or even full-time career for an increasing percentage of the population in recent years – the Private Rented Sector (PRS) is at its largest ever size and the younger generation are commonly referred to as ‘Generation Rent’, as the average age of a First Time Buyer continues to rise.

However, with the wealth of opportunities now on offer comes a higher level of responsibility. There is now more legislation and regulation than ever – the most recent changes were declared in 2011 under the guise of the Localism Act.

After being announced in 2011, changes to the way landlords handle deposits under the Localism Act came into force on the 6 April 2012. The changes caused amendment to the Housing Act 2004.

Although incorporating a host of changes, many quarters have concluded that the Localism Act has made the Housing Act 2004 more landlord-friendly, and that the introduction of deposit schemes in general has been a largely positive move for the PRS.

What is the Localism Act?

Under the Localism Act, a landlord taking a deposit from a tenant must protect the deposit within one of the selected government schemes within 30 days of receipt (increased from 14 days). They must also provide prescribed information to the tenant within 30 days. By doubling the timescale for landlords to react, more landlords have been able to comply with the regulations as the targets are more attainable.

However, if both of the above requirements are not met, the landlord could be subject to retrospective penalties. On day 31, the tenant is now able to take their landlord to court if the requirements have not been appropriately acknowledged. One of the new aspects implemented in 2012 is that if the deposit was not properly protected, even when a tenancy has ended, a tenant can now bring the process through the courts.

Penalty charges

Regarding penalty charges, a Landlord is now required to pay no less than the amount of the deposit, but no more than three times the value of the deposit. Previously, the landlord was required to pay three times the deposit no matter what; the new rules have allowed the courts a higher level of discretion, more often than not easing the financial cost on landlords in the process.

Safeguard for tenants

Having the deposit protected acts as a safeguard for the tenant. The impartiality of independent deposit schemes mean that in principal, any matters/disputes will be dealt with in the fairest way possible which can only be a good thing for the PRS.

However, problems have arisen as many landlords are blissfully unaware of the legislation; regardless of the fact that is nearly two years old. It must be noted nonetheless that all relevant documentation is available on the respective scheme’s official websites.

The introduction of the Localism Act has helped to iron out many loopholes - ones that benefitted landlords and tenants. At a time when there are a higher number of tenants than ever; a deposit is a necessity and protecting one has been become exceedingly simple and can be done with a minimum of fuss. The modern private landlord must be scrupulous, detailed and thorough; performing more of a professional duty than ever before.

More information on the government schemes can be found here

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Jenny Jervis

Written by: Jenny Jervis, Marketing Manager at Endsleigh for the Landlord and Lettings market