Taking deposits and legislation
When renting it is highly recommended you take a security deposit off your tenants which is normally the equivalent of one month’s rent or a set rate, so as new tenants move in they should pay there 1st month’s rent up front and there set deposit. We always advise landlords that this should be the minimum standard before taking on new tenants as this sets in place what’s expected in the future.
Why do I need to take a deposit?
Deposits are taken for security for the property in the possibility that you suffer financial loss during the tenancy, if this occurs landlords could make reasonable deductions from the deposit for:
- Unpaid rent or bills
- Missing items
- Damage to the property
Normal wear and tear is not considered as financial loss.
If items are damaged beyond repair or are lost, you should replace the item on a like for like basis i.e. if the item damaged was a 10 year old TV you shouldn’t ask the tenant to pay for a brand new widescreen LCD.
Remember to keep receipts for any replacements or work done.
The below legislation does not affect landlords who let out rooms in their own home where they live.
As part of the Housing Act 2004 the government has introduced tenancy deposit protection for all assured shorthold tenancies (ASTs) in England and Wales only where deposits are taken. From April 6th 2007, all deposits paid under an AST have had to be protected within 14 days of receipt by the landlord.
The legislation wants to ensure that tenant’s who have paid a deposit to a landlord or letting agent and are entitled to receive all or part of it back at the end of that tenancy, actually get it and assist resolving disputes regarding the refund of deposits.
Who is affected?
The legislation covers virtually all new AST contracts through which private landlords let property in England and Wales.
However, the following will not need to be registered with a tenancy deposit protection scheme:
- Resident Landlords (those living in the property).
- Landlords of properties with rent of over £25,000 a year.
- Company lets.
- Student accommodation let directly by universities or colleges.
Who do I register the deposit with.
The Government has awarded contracts to run tenancy deposit protection schemes to 3 companies.
The most popular service is the:
The Deposit Protection Service (The DPS)
The DPS is the only custodial deposit protection scheme, is free to use and open to all Landlords and Letting Agents. The service is funded entirely from the interest earned from deposits held. Landlords and Letting Agents will be able to register and make transactions online. Paper forms will also be available should internet access be an issue. The scheme will be supported by a dedicated call centre and an independent dispute resolution service.
The other two companies run insurance backed schemes, these also have benefits too as landlords look after the deposit but pay a fee to use the service.
Tenancy Deposit Solutions Ltd (TDSL)
TDSL also known as My Deposits is a partnership between the National Landlords Association and Hamilton Fraser Insurance. This insurance-based tenancy deposit protection scheme enables landlords, either directly or through agents, to hold deposits. Letting agents can also join the scheme.
The Tenancy Deposit Scheme (TDS)
TDS is an insurance-backed deposit protection and dispute resolution scheme run by The Dispute Service that builds on a scheme established in 2003 to provide dispute resolution and complaints handling for the lettings industry. The new scheme enables letting agents and landlords to hold deposits.