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Landlords still on the back foot with deposits

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It was recently reported that 40% of tenants in privately rented residential properties have had to borrow money from friends, family members, banks or even payday lenders to fund their tenancy deposits, according to Mydeposits.

It follows that tenants are likely to be more motivated to avoid any deductions being made from their deposit once their tenancy is at an end. As tenants become more aware of the rules governing deposits and their protection, it is important that residential landlords are similarly aware of their obligations.

After 06 April 2007, under the Housing Act 2004, residential landlords must ensure that any deposit monies taken from their tenants are protected within a tenancy deposit scheme. From 06 April 2012, the deposit monies must be registered in a scheme and the prescribed information provided to the tenant within 30 days of receipt of the deposit monies. This also applies to tenancies which began before 06 April 2012 but were renewed after this date. Landlords can face harsh sanctions if they fail to comply with the rules. The sanctions have been well publicised and include:

  1. A tenant is entitled to bring a money claim against their landlord of between one and three times the amount of the deposit and it is at the Court’s discretion what figure it chooses to award. The tenant can also raise this as a counterclaim to defeat a claim for possession based on rent arrears.
  2. A landlord will not be able to serve a valid Section 21 notice seeking possession on their tenant. The only way of rectifying this is to pay the deposit money back to the tenant in full or with agreed deductions.

It seems simple enough to avoid falling foul of the rules. However, a small oversight can cause a large problem to a residential landlord, especially in circumstances where they are personally managing their own properties.

A very common issue occurs when landlords decide to take deposits in instalments, perhaps by an additional payment on top of the rent each month. It seems to be common sense that a landlord would only need to protect these monies once the full amount of the agreed deposit has been paid by the tenant. However, it is common that the Courts do not take this view. Instalment payments also need to be protected within 30 days of receipt.

This is relevant even in circumstances where the tenants may pay some instalments but fail to pay the remainder. In the circumstances, the Courts are still likely to take the view that, as some money have been taken, this money constitutes a deposit and should be protected. It can even apply in circumstances where a deposit in instalments is agreed but the tenant never pays the instalments. In some instances, the Court has taken the view that the instalments should be taken from any payment received by the landlord, even if the landlord believes this to be in respect of the rent only.

Unfortunately, it tends to be landlords who are attempting to help a struggling tenant who end up falling foul of the rules.

Top Tips

  1. Ensure any deposit money taken from the tenant is paid into a tenancy deposit scheme as soon as is practically possible and in any event within 30 days of receipt. The earlier you do this, the better.
  2. Do not forget to provide the tenant with the necessary prescribed information, again before 30 days have expired from receipt of the monies. It is common to include these within the body of the tenancy agreement to ensure this has been done at the earliest opportunity.
  3. Avoid taking deposits in instalments if at all possible. Consider alternative methods such as a guarantor if the tenant can only provide a deposit in this way. If this is not available, protect each individual instalment payment as a deposit within 30 days of receipt.
  4. Should you feel that you may have fallen foul of the rules in relation to the deposit, take advice as soon as is practically possible. This will ensure you don’t waste costs in pursuing possession of a property with reliance on an invalid notice.

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