We have seen much news about the Tenancy Deposits scheme and have been asked by many clients to clarify a few points regarding it. Our first piece of advice is to clarify that this deposit money is NOT the landlords, and at all times this money belongs to the tenant.
What are these deposits then?
Essentially the deposits are a set payment made by the tenant to the landlord that they hold for the duration of the tenancy/occupation of a property, this can only be used by the landlord at the end of the tenancy if any money is owed in connection with the property:
- Unpaid rent
- Broken items from the property
- Repairs (that fall outside of wear & tear)
So can a landlord take the deposit at the end?
The answer to that is yes and no …only if they have Authority to do so based on the terms of the tenancy agreement. When the tenant agrees to the Landlords/Agents tenancy agreement there will be a clause in there that stipulates that deductions can be made from the deposit money for any monies owed to the landlord for any breaches of the terms of the tenancy agreement.
So either if you are a Landlord or a Tenant its advisable that you both go through the tenancy agreement in full together in order that both parties understand the main elements.
Is there just one scheme
There are actually three schemes available that slightly vary:
The first two schemes (TDS & My Deposits) are insurance backed and allows the landlord to hold the funds/deposit in his/her bank account, they pay a monthly/annual fee as part of the scheme. If any issues arise with the Landlord i.e if they run off with the money, the tenant will be paid back in full by the scheme (who then begin proceedings against the Landlord to recoup the cost).
THE DPS scheme differs as it is free to use, the deposit is paid direct to the schemes administrators to hold. This type of scheme is classed as ‘custodial’ and currently only DPS are authorised to run this type of scheme in the UK (they also offer an insurance based scheme as well).
In summary then the deposit scheme is a very good thing and offers a layer of protection to both Landlords and Tenants, for us it is considered a must for every single letting that we do. Some points to remember if a Landlord chooses to not protect the deposit:
- The Landlord will be vulnerable to being sued by the tenant for a penalty of between 1 and 3 times the deposit sum
- The Landlord will not be able to serve a section 21 notice unless:
- the deposit money is retuned to the tenant (and deductions can ONLY be made with the tenants consent) or
- there has been a claim for the penalty which has been resolved by agreement or a court order
Remember…there are NO exceptions
If you have chosen to not protect the deposit or you simply forgot or was not aware that you are required to do so as a Landlord, you cannot proceed with a section 21 notice to evict a tenant without refunding the deposit funds. It simply cannot be done, you are not permitted to evade the law.
As more and more people become firmiliar with this legislation it’s hoped that it will settle down somewhat and the amount of issues/disputes will decrease significantly. What are your thoughts on the Deposit Scheme? leave a comment below.