PLEASE SEE THE UPDATE FOR TENANCIES WHICH STARTED AFTER THE 1ST OCTOBER 2015
It is standard to collect a deposit at the start of a tenancy, it protects you the Landlord from any damages caused as a result of the tenant breaching their lease.
As a general rule you should collect somewhere between 6 – 8 weeks rent as a deposit. I collect 6, you might prefer 8, and some people collect 4… it really is up to you. Make sure you cover yourself for any void periods that could arise during the tenancy but weight this up against the ability of a tenant to be able to afford to put such a large lump sum down at the beginning of the tenancy (look at the market you are in!).
MAKE SURE YOU THEN GET AN INVENTORY DRAWN UP AT THE BEGINNING OF THE TENANCY AND GET THE TENANT TO COUNTER SIGN THIS – THE CONDITION OF THE PROPERTY IS THEN DOCUMENTED.
You then need to register yourself with a Tenancy Deposit Scheme (your letting agent can do this for you if you would like but it is free of charge). There are a number of these schemes I use the Deposit Protection Service. You then log the deposit and transfer the funds across to them for safe holding. Since April 2007 tenancy deposits for Assured Shorthold Tenancies in England and Wales have to be protected by an authorised tenancy deposit protection scheme. You need to submit the deposit within 14 days of the tenancy starting.
What if the deposit isn’t protected?
- You will not be able to serve a valid Section 21 notice (Notice of Possession) to legally repossess your property at the end of the tenancy.
- The tenant may make an application to seek a return of the deposit and also prosecute for further compensation. The Court can award an amount between one and three times the deposit amount.
So to ensure you are covered, register the deposit and send the prescribed information and confirmation of the deposits registration in an email directly to the tenant with a read and delivery receipt (you can also put it in the post if they don’t respond). Make sure your letting agent does this if you don’t hold the deposit yourself.
At the end of the tenancy you can then do a check out with the tenant and go through the original check-in report (accounting for reasonable wear and tear!). If there is any damage you can then apply to the deposit protection service to deduct this from the deposit, the tenant will also be asked to agree. If there is no deduction you can just apply to the service to release the deposit to the tenant. If there is a dispute then you can make full use of the dispute resolution services provided by the tenancy deposit schemes – just remember to keep evidence, so always take photos, keep receipts for any works and ensure you have statement of rents received.
It is a really simple process, but again an absolute must!
UPDATE FOR TENANCIES AFTER 1ST OCTOBER 2015
- If a landlord took a deposit after 6th April 2007 but missed the deadline to get it registered by 23rd July 2015, then this is how the law stands.
- If the landlord has not registered a deposit in a government-backed deposit scheme within 30 days of receiving the money, the landlord has to return the deposit money to the tenant immediately, as until the landlord does so they cannot serve a Section 21 Notice.
- If the prescribed information relating to the deposit has not been given to the tenants and any other relevant persons within 30 days of the deposit being received, then the landlord cannot serve a section 21 notice. (‘relevant person’ presumably means guarantors, or anyone who helped pay for the deposit).
- However, so long as the deposit money has been put into a scheme within 30 days, the ‘prescribed information’ relating to the deposit can be served at a later date, which then allows the landlord to serve a section 21 notice.
- Do not expect the deposit scheme to provide the ‘prescribed information’ to the tenants, whatever the scheme suggests it might do. It is the landlord’s explicit responsibility to make sure all relevant persons receive the prescribed information. If in any doubt whatsoever, serve the documents yourself, keeping good evidence of having done so.
- Also check with the scheme what documents constitute the prescribed information. The website of one deposit scheme is far from clear what documents to use. If you are not clear, ring the scheme.
- Notwithstanding these difficulties over section 21 notices, any deadlines for compliance with the rules that are missed mean that the landlord will be liable to the tenant for between one and three times the amount of the deposit, should the tenant bring a claim, or a counterclaim.
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