Martin Searle Solicitors’ Cate Searle explains why landlords need to sign up to a rent deposit scheme and the penalties for failing to comply.
Despite the law being more than a year old, many local landlords are still running huge risks by failing to register tenants’ deposits with an approved scheme. And the financial consequences can be catastrophic for the small buy-to-let landlord.
Since April 6 2007, landlords granting new assured shorthold tenancy agreements have needed to register deposits with one of three government-approved schemes. The purpose is to safeguard deposits and ensure they are returned swiftly at the end of the tenancy if there are no rent arrears and if the tenant has kept the property in good condition. Deposits are either held by a third party (under the custodial scheme) or protected by an insurance premium paid by the landlord (insurance-based schemes).
Thousands of landlords have signed up – either directly or through their letting agents – and almost a million deposits worth £900m have been protected. However, too many landlords are still not aware of the law or are deliberately flouting it. But that can be a costly mistake.
For example, one small landlord called me last week trying to recover unpaid rent totalling nearly £3,000. She had genuinely not known she needed to register her tenant’s deposit until I raised the issue. She was devastated when I explained that her tenant could take her to court to seek to recover three times the sum of the deposit and the return of the original deposit. This would have meant the landlord paying out in excess of £3,600 simply because she had failed to take the basic step of registering the deposit. What was owed to her in rent arrears would be set off, but she would still end up out of pocket.
And it isn’t just landlords dealing direct with tenants’ deposits that are suffering the consequences of failing to comply. Unwitting property owners are also paying the price when letting agencies fail to safeguard deposits in the required way. As a landlord you should ensure your letting agent is fully compliant with the legal requirements as it is you as landlord who is ultimately responsible for the deposit.
We are currently acting for a tenant who has a claim worth over £6,000 because her landlord and his agents failed to protect her deposit for over five months, even when she politely and repeatedly reminded them to do so . The agents only took the necessary steps after the County Court issued a default judgement. The landlord is furious with his agents, who he had entrusted to take the right action. No doubt he will now take action against his agents, but in the meantime he will shortly be ordered to make a payment of £6,000 to my client. He may also be ordered to return her deposit, and will be ordered to pay her legal costs.
Signing up to the scheme also places new legal requirements on landlords, some of which have recently been amended. The new law also gives tenants the option to challenge through Alternative Dispute Resolution for free any deductions from deposits made at the end of the tenancy. To avoid headaches, landlords can take steps to discourage tenants from frivolously challenging deductions and to prevent any genuine deductions being rejected should the case go to ADR.
Get full details about the changes to the scheme and how best to protect yourself from challenges to deposit deductions with our FREE updated Tenancy Deposit Factsheet at www.ms-solicitors.co.uk.
Next month Cate Searle will offer advice on how to ensure you don’t end up with a claim for unlawful eviction.