Tenancy deposits are often sought by landlords on commencement of a residential assured shorthold tenancy “AST”. It can provide a safety net of sorts in the event a tenant leaves the property with rent arrears or in a condition below the required standard. However, how you manage a deposit can have serious consequences given the stringent rules which have been introduced. Therefore, it’s in your interests to be fully acquainted with the rules to avoid both the financial penalties and reduced opportunities for eviction which can befall you should you fail to properly manage the deposit following the rules; rules which are also time-sensitive.
Here are a few tenancy deposit rules that every landlord must know. Read on to learn more.
Government Approved Tenancy Deposit Schemes
Tenancy deposits must be placed in a government-backed Tenancy Deposit Scheme by all landlords within 30 days of its receipt where they have entered into an AST. In parallel, the tenant must be sent what is commonly referred to as the prescribed information; a set of information giving the tenant full details of who the stakeholders are and how each stakeholder will conduct themselves with regards to the deposit. This rule has been introduced to ensure that a tenant’s deposit is afforded full protection during the conduct of the tenancy. It is there to ensure that an agent or landlord cannot use the deposit for cash flow during a tenancy and/or disappear with the deposit. It also allows for a clearly defined and transparent procedure for determining how a deposit should be apportioned at the end of the tenancy thereby guaranteeing its fair and timely return. The tenet of the scheme is that a tenant is entitled to the full return of their deposit if they have kept their rental account up to date and returned the property to the landlord in the same condition in which it was taken once fair wear and tear has been factored in.
There are currently three main service providers in this area as follows:-
- Tenancy Deposit Scheme (TDS)
- Deposit Protection Service (DPS)
- My Deposits
However, there are two schemes by which a deposit can be protected:
The Insured Scheme allows the landlord or letting agent retain the deposit in their account but pay a charge to the service provider during the full term of the tenancy. This cost is paid on a “pay as you go” basis, which means you don’t have to pay it after the tenancy is completed.
The Custodial Scheme eliminates the need for the landlord or letting the agent pay a fee because the funds are held by the service provider. At the end of the tenancy, the service provider releases the deposit by the parties’ wishes or once any disagreement has to be arbitrated. Either tenancy deposit protection schemes are permitted, so you can choose which best suits your needs.
A tenant does not have any right to input into the choice of the service provider or scheme.
Tenancy Deposit Deductions
At the end of the tenancy, a landlord should review the rental account and the detailed inventory conducted on move-in with the inventory conducted on move-out to determine whether there is a valid claim for deductions. At all times, the underlying claim must be fair and reasonable. This should then be discussed with the tenant promptly to allow for the parties to find common ground and collectively authorize the apportionment of the deposit. If a dispute ensues and the parties cannot find common ground, then the scheme will provide a dispute resolution service at no extra charge.
Landlords Are Obligated To Protect Tenant Deposits
Landlords have been obligated to register a tenant’s deposit with a government-backed scheme since April 2007 although for many years it was not robustly policed. Since the introduction of the Localism Bill and De-Regulation Act, the rules are stringent and financial sanctions can be imposed if deposits are not managed explicitly under the rules. As an example, a deposit must be registered within 30 days of its receipt. Even if the registration procedure is conducted meticulously albeit one day thereafter then a tenant can apply for its return and seek an award up to 3x the deposit sum, and possibly adverse legal costs in addition. A minor breach is unlikely to yield the maximum penalty, but why expose yourself to any risk – so act fast! Other sanctions are also implied, such as the right to ignore a section 21 notice. If there is a breach of the deposit registration procedure then it’s probably in your interest to return the deposit rather than re-register. There are pros and cons so it’s best to learn about these and make an informed decision.
If you’re interested in learning more about your obligations as a landlord, perhaps find yourself in a dispute with your tenant or want to confidently navigate the tenant deposit rules to avoid the possibility of a financial sanction, then consider speaking to Residential Eviction Expert at Landlord Assist., an eviction company UK, which provides services for Landlords are their specialist subject!