Landlords of residential property lets on assured shorthold tenancies need to be aware of the latest stages of the Housing Act 2004 introducing Tenancy Deposit Schemes, which come into force on the 6th April 2007.
Currently, most landlords take deposits at the start of a tenancy to safeguard against rent arrears or dilapidations which are normally held throughout the tenancy and returned at the end minus deductions as necessary. The onus is on the tenant to dispute any sums retained by the landlord and to bring a county court claim if he feels that the landlord has behaved unreasonably. Alternatively, the landlord can appoint an agent to act as a stakeholder, holding the deposit until both parties agree as to how the deposit should be paid out.
From 6th April 2007, landlords must either safeguard any monetary deposit through a Tenancy Deposit Scheme pursuant to the provisions of the Housing Act 2004, or face serious sanctions. The objective of this new legislation is to remove the risk of misappropriation of tenants' deposits. The new legislation only impacts on agreements entered into on or after the 6th April 2007.
Two types of scheme are being introduced:
- The Custodial Scheme where the landlord pays the tenant’s deposit into the scheme. Within 14 days of receiving the deposit, the landlord must inform the tenant about the scheme being used. At the end of the tenancy, both landlord and tenant will jointly notify the scheme and the scheme will return the deposit, divided as agreed. If there is a dispute, the scheme will retain the amount in dispute pending resolution by the dispute resolution service (a free service) or the court. There is no charge to the landlord for using the custodial scheme.
- The Insurance-based Scheme where, in return for retaining the tenant’s, the landlord must pay a premium to the insurer. Again, information about the scheme used must be supplied within 14 days and, if both parties agree at the end of the tenancy, then the deposit is divided as agreed. In the event of dispute, the landlord must pay the deposit to the scheme pending resolution. If he fails to do so and the tenant is awarded some or all of the deposit, the tenant will receive payment and the insurer will pursue the landlord for non-compliance with the scheme.
A landlord’s failure to secure a tenant's deposit in one of the approved schemes is potentially costly. If a tenant is not provided with details of the scheme being used within 14 days of receipt of the deposit, the landlord could face a penalty of up to 3 times the deposit. In addition, failure to comply means that a landlord cannot regain possession by relying on a Section 21 Notice - the usual 'no ground' notice used to guarantee regaining possession at the end of the term.
The combined threat of financial penalties and possible problems regaining possession must be a key incentive to ensure compliance with the new Tenancy Deposit Schemes. But, some landlords may prefer to forgo a deposit, rather than risk falling foul of the new legislation.
Steps to take if you are a residential landlord:
- Register with one of the three Government appointed scheme providers. For details of these visit www.tenancydeposit.gov.uk or contact the Communities and Local Government's Tenancy Deposit Protection Team on 020 7944 4400.
- Ensure that any new tenancy agreements entered into on or after 6th April confirm that any deposit paid will be held under one of the approved Tenancy Deposit Schemes.
- Take a detailed inventory at the beginning of the tenancy, including details of the condition of the property. This will help you to prove any dilapidations and bolster your chances of retaining part of the deposit to cover the cost of making good any damage or breakages.
If you require further information or advice, please contact Mary Rouse, on 01926 880735 or mary.rouse@wrighthassall.co.uk.
