For some landlords, the idea of putting a tenant deposit into a protection scheme may seem unnecessary or even burdensome – why can’t you just return the deposit after the tenancy has ended if no damage has been caused to the property? In an ideal world that might be the case, but the purpose of protection schemes is not simply to impose (more) rules and regulations upon landlords. Rather, they exist to raise standards in the letting industry and ensure landlords do not unfairly keep deposits after the tenancy has ended.
What is a tenancy deposit?
An amount of money which is designed to cover damage to the property. It’s taken by a landlord from a tenant before an assured shorthold tenancy starts. A typical deposit amount is the equivalent of one month’s rent (but it could extend to one and a half or two months’ worth).
Current deposit rules
- Deposits taken before 6 April 2007 for tenancies which became periodic on or after this date must been protected in a government-backed Tenant Deposit Protection scheme (TDP).
- Deposits taken before 6 April 2007 for tenancies which became periodic before this date don’t need to be protected. This means, however, that a landlord can’t serve a section 21 notice to evict a tenant. In order to do this, the deposit would have to be protected.
- Landlords with pre 6 April 2007 agreements had until 26 March 2015 to register a deposit in a TDP. Anything not registered would be deemed invalid.
- If the deposit was taken pre 6 April 2007 but have been changes to the tenancy agreement after that date (e.g. change in tenant names) then you would have to register the deposit. A change in rent doesn’t apply.
If you’re a live-in landlord or your tenants pay more than £100,000 a year, these laws don’t apply. Company lets and student accommodation isn’t covered either.
Where do you place a deposit?
There are 3 TDPs available to place a deposit:
You must tell the tenant which scheme you have placed their deposit in and give them a copy of the deposit protection certificate and prescribed information document.
What goes in a prescribed information document?
The prescribed information document must be specific to the tenancy agreement and define:
- the circumstances when all or part of the deposit may be retained by the landlord, by reference to the terms of the tenancy
- all tenant contact details (and the contact details of anyone else who provided the deposit)
- name and contact details of the appropriate TDP scheme administrator
- copy of an information leaflet supplied by the scheme administrator about the operation and terms and conditions of the scheme
- information about the procedures that will apply to the release of the deposit after the tenancy has ended – and what happens if either the landlord or tenant is not contactable
- procedures that will apply if the amount of the deposit to be returned is disputed
- what will happen under the scheme to enable a dispute to be resolved without going through the courts
Don’t underestimate the importance of issuing the prescribed information document – failure to do so means the deposit would need to be returned in order to serve notice on a tenant.
When should you place a deposit in a TDP?
You are legally obligated to place a tenant’s deposit in one of the schemes within 30 days from the moment you take the payment – not from the moment the payment clears. (Yes, this even applies to cheques.)
When should you return a deposit?
You must return a deposit within 10 days of agreeing with the tenant how much they are getting back.
Tip: it’s wise to agree before the tenancy starts what situations or damage may result in the deposit (or parts of it) from being withheld. This can be included in the prescribed information document.
What if you don’t do what the rules say?
You’ll be penalised in one of two ways. The first sanction is to be restricted from ending the tenancy with a section 21 notice until you have repaid the deposit. The second is, if the tenant successfully makes a County Court claim, you pay them compensation between one and three times the value of the deposit.
What if I reach a new agreement with the tenant?
The deposit protection certificate should be amended with a new expiry date or, if the tenancy becomes periodic, state the date of expiry is periodic. If you simply agree a new amount of rent payable, the certificate doesn’t need to be changed.
What if the tenant doesn’t agree with the amount you agree to repay?
Then, unfortunately, you’ve got a dispute on your hands. If attempts to negotiate are futile, this is where the TDP will step in with their free mediation service. An impartial adjudicator will hear views and evidence from both parties before deciding (within 28 days) how to split the deposit. The money will then be paid out in line with that decision.
There is always the option to go to court, but this will almost always cost more and the courts have the power to award more than the amount of the deposit itself if they feel it justified.
Whatever path the dispute takes, the deposit will be held by the TDP scheme until it is settled.
Tip: take a detailed inventory before the tenancy begins and photographs before and after to support yourself if you find yourself in a dispute.
Most landlords fail to register deposits correctly, or at all. Don’t be one of them.