What needs to happen to tenants’ deposits

July 11, 2012

Landlord Information

In spring of this year new legislation was introduced with the aim of protecting the deposits that tenants typically have to pay to their landlord at the start of their tenancy. The deposit acts as a form of guarantee against them damaging the property or leaving with rent arrears outstanding.

Basically these new rules mean that there are now processes that must be followed that will help protect the interests of both landlords and tenants.

The deposit money, which technically still belongs to the tenant throughout the period of the tenancy, must now be placed in a government approved deposit protection scheme.

For all new tenancies, landlords must place the deposit funds in a scheme within 30 days of the start of a tenancy.  Tenants must also receive notification of the scheme being used, how to get the money back at the end of the tenancy and the procedures that will be followed if there is a dispute relating to the retention of the deposit (or part of it).

Landlords had until the 6th May to make similar arrangements for the deposits they may have been holding for existing tenants (deposits taken from tenants prior to April 2007 may be exempt unless a new tenancy agreement comes into force).

Landlords may wish to note that failure to comply with these new regulations could result in a fine up to three times the value of the deposit and may make it more difficult for the landlord to evict their tenants should the need ever arise.

There are two types of scheme available – custodial and insured.  You may wish to note that the insurance scheme is not the same thing as buy to let landlord insurance.

Custodial schemes

The deposit money is paid to an approved third party who is then responsible for its repayment at the end of the tenancy. If there are disputes, the third party will help in their fair resolution.

Insurance Schemes

The deposit money can be retained by the landlord but must be protected by a third party via an insurance scheme with the landlord paying the premium. At the end of the tenancy if the deposit is to be repaid in full or with an agreed retention, the landlord simply notifies the third party that repayment has been made and the funds are unprotected. If there is a dispute, the landlord must lodge the disputed amount with the third party until a resolution through arbitration is achieved.

There is some useful and more detailed information on the Shelter website on options for this new set of rules*.

*Source:

http://england.shelter.org.uk/campaigns/deposit_protection

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