As a landlord you need to be certain about the best way to protect yourself against the financial impact of having tenants who damage your property. These can be the very people who either fail to pay all the rent they owe you, or fight to get their deposit back – even though this is required to cover the cost of damage – costing you time and money.
As you will know, since April 2007, any deposit taken from a residential tenant under an assured shorthold tenancy agreement needs to comply with new legislation.
In effect this means that any deposits taken must be placed within a government approved scheme either by placing the monies in the hands of an approved third party, or by having the deposit insured for the benefit of the tenant.
Both these can involve the landlord in administration and lead to uncertainty over the level of protection provided. This has had a significant impact on the entire buy-to-let sector, potentially reducing the attractiveness of this form of investment. There are however, a number of ways in which the burden on landlords can be managed or virtually eliminated.
Do nothing …
One of these is to take no action at all; that is not to take a deposit and to rely on tenants not damaging the property. For most landlords, this is unlikely to be an attractive option.
Use a designated deposit scheme …
While this appears to be the simplest solution, it does have potential drawbacks, not least of which is that these schemes either involve cost or, if free, offer no interest on the money deposited (which is how the administration is paid for). In general, they are unlikely to provide any dispute resolution service, so there could easily be additional expense when a tenant leaves, should the landlord wish to retain any of the money to make good damage.
Use a ‘combined’ deposit scheme …
Some deposit based schemes also include dispute resolution, but these will involve fees covering both membership and a charge per letting. Several schemes are promoted by the Residential Landlords Association and can include a combination of holding deposits and insurance in order to provide maximum protection to all parties.
A dedicated tenants deposit insurance solution …
An alternative which is proving increasingly attractive to many landlords is a landlords insurance scheme offered by Alan Boswell Group. This obviates the need for a deposit to be taken while still providing full protection for the landlord for up to £1,000 worth of damage in any period of insurance (once the damage exceeds £100 in value).
In each case, a check of the tenant is undertaken by Keysafe (UK) Ltd, giving you peace of mind of knowing that you are not taking on a tenant with a poor rental history. The insurance covers damage discovered within 14 days of the end of the tenancy period and is offered in addition to the Alan Boswell landlords insurance policy.
Costs range from as little as £42 a year; less for members of the National Federation of Residential Landlords.
As an extra to property owners insurance, Alan Boswell Group also offers rent guarantee insurance, at additional cost, if required. This can indemnify you should a tenant fail to pay your rent within the terms of the agreement and you are unable to recover the arrears from the deposit.
General tips …
You should always make an inventory of the property before each tenancy commences, in order to help with dispute resolution. Ideally, digital photographs taken in advance will help both landlord and tenant should the need arise.