A report by the Centre of Economics Business Research for Money.co.uk (2015) shows that whilst 85% of landlords are compliant in protecting their tenant’s deposits, around 300,000 of UK landlords are estimated to not be.
This research suggests that up to approximately £514 million’s worth of deposit money is not protected, putting landlords at risk of fines up to three times the deposit value. As a landlord, it is therefore essential to know about your Tenancy Deposit Protection (TDP) obligations and to comply with Tenancy Deposit Scheme rules.
WHAT IS TENANCY DEPOSIT PROTECTION?
Tenancy Deposit Protection was introduced in April 2007 (as part of the Housing Act 2004) for all assured shorthold tenancies in England and Wales where a deposit was taken.
WHY WAS TENANCY DEPOSIT PROTECTION INTRODUCED, AND WHAT ARE ITS BENEFITS?
The legislation was introduced because the Government recognised that many deposits were being withheld unfairly at the end of a tenancy. The introduction of Tenancy Deposit Protection was therefore identified as a way to raise standards in the lettings industry and ensure tenants are treated fairly.
Landlords can feel as though they are not trusted with deposits, however in reality the deposit is not their money, but instead the tenants’. Deposit protection removes this element of trust, allowing the landlord-tenant relationship to become more transparent.
WHAT ARE MY LEGAL OBLIGATIONS?
From April 2012, as a landlord, you must have protected any deposit you received within 30 calendar days of receiving it. In England and Wales deposits can be registered with:
• Deposit Protection Service (Custodial and Insured)
Once you receive the deposit you must inform your tenants of the following within 30 days:
• The address of the rented property
• How much deposit you’ve received from the tenants
• How the deposit is protected
• The name and contact details of the TDP scheme and its dispute resolution service
• Why you would keep some or all of the deposit
• How to apply to get the deposit back
• What to do if there’s a dispute over the deposit
(Please visit gov.uk for a more exhaustive list)
Tenancy deposit schemes
In England and Wales there are two types of landlord tenancy deposit scheme: custodial and insurance-based.
At the start of a new tenancy agreement, the tenant pays their deposit to their landlord or agent as usual. The landlord or letting agent must then ensure it’s protected by enrolling it in a government-approved tenancy deposit scheme.
CUSTODIAL TENANCY DEPOSIT SCHEMES
Under a custodial tenancy deposit scheme, the money is held by the scheme provider, rather than the landlord, until it’s time for it to be repaid at the end of the tenancy.
There is only one custodial scheme provider - the Deposit Protection Service. This scheme is free to use as it is funded entirely from the interest earned from deposits held.
At the end of the tenancy, if an agreement is made about how the deposit should be paid, the scheme will return the deposit as agreed. If there’s a dispute, the scheme holds the deposit until the dispute resolution service, or the courts decide what should happen to it. Until resolved, any interest accrued is used to pay for the running of the scheme, with any surplus going to the landlord or the tenant, depending on who is entitled to it.
INSURANCE-BASED TENANCY DEPOSIT SCHEMES
Unlike the custodial scheme, under the insurance-based tenancy deposit schemes the landlord keeps the deposit. There is a fee attached to these schemes to insure against the landlord failing to repay the tenant any money due to him/her. There are two insurance-based schemes: mydeposits and the Tenancy Deposit Scheme.
At the end of the tenancy, the landlord or agent should return all or some of the deposit (as agreed) within 10 working days. If there’s a dispute, the landlord must hand over the disputed amount to the scheme for safekeeping until it’s resolved. If for any reason the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant, if they are entitled to it.
NON-COMPLIANCE WITH TENANCY DEPOSIT SCHEMES
If, as a landlord, you don’t protect the deposit, your tenant can take you to court either during the tenancy or up to three months after it has come to an end. The court can order the landlord to pay the tenant up to three times the amount of the deposit within days of making the order.
TENANT DEPOSIT DISPUTES
The legislation also introduced standards for the way in which deposit disputes are handled. All Tenancy Deposit Protection providers offer a free Alternative Dispute Resolution (ADR) service for occasions where tenants and landlords can’t agree on if and how much should be deducted from a deposit.
3 top tips to avoid deposit disputes
Deposit disputes between tenants and landlords can be stressful. Follow these simple steps to help reduce the risk of disputes taking place.
A good, reputable letting agent or landlord should conduct an inventory before handing over the keys, which is then signed by both the tenant and the landlord.
An inventory is a document which shows any wear and tear, damages or imperfections in the properties buildings or contents. It basically details the state of the property at the point the tenant takes residence.
The best inventories are photo or video inventories, as there can be no disputing the state of the property.
At the end of the tenancy, any damages which aren’t detailed on the inventory are then said to be due to the fault of the tenant and so repair or replacement costs could be deducted from the deposit.
Inventories can be pricey but could save you from losing a few hundred pounds in a deposit dispute if you can’t prove the damage was due to the tenant.
2. KNOW YOUR TENANTS
Having a good relationship with your tenant can stop disputes occurring. Most disputes are resolved between the tenant and the landlord directly without having to go to an adjudicator. You may be able to come to some arrangement over any repairs or damages.
A good tenant should inform you of any repairs that need to be carried out which in turn allows you as the landlord to reduce the damage to your property and stop them from disputing any claims.
Insurance is available for both tenants and landlords which covers both parties against accidental or malicious damage that’s caused to the property. It’s inconvenient if the tenant damages the property and you’re unable to reclaim costs through the deposit. However, if you have the correct insurance in place you can rectify the damages by submitting a claim.