Failing to follow the law protecting tenants’ deposits can be costly for landlords, with the potential of paying up to three times the amount deposited. But it’s not just the landlords who are having their profits desecrated for tripping up, the big boys are also in the spotlight.
This has been displayed recently, as Purplebricks have been forced to pay out around £9 million. It has been reported that the lettings business of the online estate agency did not follow the deposit protection procedures correctly. (Source: The Guardian)
Deposit protection schemes were brought in to prevent dishonest landlords from holding deposits, which can be worth more than a month’s rent, but cannot be more than 5 weeks’ rent.
Tenancy Deposit Protection scheme – the rules
As a landlord, you must place your tenants’ deposit in a deposit protection scheme if you rent out your property on an assured shorthold tenancy (after 6th April 2007).
It must be placed within a deposit protection scheme within 30 days of receiving it.
You must use one of only three government-supported schemes if your property is in England or Wales:
- Deposit Protection Service
- Tenancy Deposit Scheme
These all offer to hold the deposit for free, known as a ‘custodial’ scheme’ or you can hold the deposit and pay the scheme to insure it, known as an ‘insured’ scheme.
The tenant is entitled to their deposit within 10 days of agreeing on the amount that will be returned.
Tenants must receive their deposit back if they:
- Meet the terms of their tenancy agreement
- Do not damage the property
- Pay their rent and bills
A deposit offers a landlord a sense of security and means that should the tenant breach the terms mentioned above, an appropriate deduction can be taken from the deposit.
However, holding deposits from future tenants do not have to be protected. Once they become tenants the holding deposit becomes a deposit, which must be protected.
Consequences of failing to follow suit
If you do not protect your tenants’ deposit, you could be ordered to repay the tenant up to 3 times their initial deposit. Deposits are usually equivalent to the price of a month’s rent, which is not cheap by any means. Citizens Advice suggests a tenancy deposit will usually be the same amount as 4- or 5-weeks’ rent.
For example, if a landlord is renting out a property at £800 per calendar month and fails to comply with a tenancy deposit scheme, they could be charged up to £2400.
The estate agent, Purplebricks, has been in the news recently for failing to protect deposits and the repercussions they are faced with are costly.
It has been reported they will set aside millions to cover the blunder by their letting’s business.
The court may also decide that your tenants do not have to leave the property when the tenancy ends. This is clearly not a good situation for any landlord.
There is also a list of items of information a tenant must be provided with, within 30 days of a landlord receiving the deposit:
- The address of the rented property
- How much deposit they have paid
- How the deposit has been protected
- The name and contact details of the deposit protection scheme and its dispute resolution service
- The landlord or letting agency’s name and contact details
- The name and contact details of any third party who paid the deposit
- Reasons why some or all of the deposit may not be returned to the tenant
- How to apply to receive the deposit back at the end of the tenancy
- How to overcome communication issues between the landlord and the tenant at the end of the tenancy
- What to do if there’s a dispute over the amount of deposit to be returned at the end of the tenancy (Source: GOV.UK)
Deposits for pets?
Landlords in England cannot request a higher deposit for renting with a pet or professional cleaning service at the end of the tenancy. However, a landlord can charge extra rent for a pet in their property.
The tenancy deposit protection scheme has a free dispute resolution service if the landlord and tenant disagree about how much of the deposit should be returned.
GOV.UK – Deposit protection schemes and landlords: https://www.gov.uk/deposit-protection-schemes-and-landlords