As assured shorthold tenancies with deposits registered under the Tenancy Deposit Scheme come to an end, landlords need to take preventative measures in order to ensure their tenancies finish with as few problems as possible.
Tenancy deposit scheme: the basics
The requirement for landlords to protect the deposits of tenants with Assured Shorthold Tenancy agreements (AST) became mandatory on April 6, 2007 and affects all ASTs created on or after that date.
The penalties applied against a landlord who either fails to protect a deposit or fails to provide the prescribed information to the tenant about the deposit are severe.
The non-compliant landlord will not be able to rely on the Section 21 Notice to recover possession at the end of the fixed term of the tenancy (‘notice only’ possession proceedings). Also if the tenant makes an application to the County Court as a result of the landlord failing to protect the deposit, the landlord will be ordered to pay a sum three times the size of the deposit to the tenant.
How the scheme is delivered
There are three approved tenancy deposit schemes:
- The Custodial Scheme is administered by the Deposit Protection Service. The landlord pays the deposit over to the scheme and there is no administration fee as interest earned on the deposits covers running costs.
- Tenancy Deposit Solutions Ltd is one of two organisations awarded a contract to operate an authorised insurance-based tenancy deposit protection scheme. The scheme is sponsored by the National Landlords Association and administered by Hamilton Fraser Insurance. The landlord keeps the deposit but pays a premium together with a joining and yearly membership fee.
- The Tenancy Deposit Scheme is the second insurance-based scheme. It operates in the same way as the insurance scheme above.
Renewing existing tenancies
There has been recent clarification provided to landlords about what steps to take when a landlord issues an existing tenant with a new fixed term AST agreement after the expiry of the original fixed term AST. If the landlord has used one of the insurance based schemes, the landlord is required to “unprotect” the original deposit and purchase a new deposit protection for the new AST.
If the landlord is simply increasing the rent payable under the AST at or after the end of the fixed term, with the agreement of the tenant, and without issuing a new fixed term AST, then the original deposit protection remains valid.
Dispute resolution under the tenancy deposit scheme
In the event of disagreement between the landlord and tenant at the end of the tenancy, the parties may elect to use the Alternative Dispute Resolution (ADR) service which is free of charge. Alternatively, the parties can still deal with the dispute through the County Court although this takes longer and is not a free service.
Using the ADR service to challenge landlords’ deductions from deposits will cost tenants nothing. As a result, many in the industry expect to see a large number of challenges. Landlords, on the other hand, will bear the brunt of the associated costs in both time and professional advice.
However, there are a number of simple steps landlords can take to discourage tenants from frivoulosly challenging deductions in the first place and to prevent landlords’ deductions being rejected should the case go to the ADR.
Protecting your rights as a landlord
To protect your rights as a landlord to recover part or all of a deposit when the tenant has either not left your property in a good condition or has left rent arrears, you should take the following essential steps:
- Register the deposit and serve the tenant with the prescribed information about the deposit and where it is registered, etc, within 14 days of the tenancy commencing or collecting the deposit, whichever is the earlier.
- Keep accurate records and correspondence about rent payments, missed payments and rent arrears.
- Compile an accurate and detailed checking-in inventory at the start of the tenancy. The inventory needs to show the state and condition of fixtures, fittings and furniture, etc, when the tenant moved in. It may be useful to have photographs. Ask the tenant to sign and date the checking in inventory.
- Use the checking in inventory to produce a detailed checking out inventory.
- Consider using an independent inventory checking service at the start and end of the tenancy to minimise the risk of dispute.
- Keep receipts for materials and labour if you have to repair tenant damage and obtain photographic evidence of the damage.
- Do not agree with the tenant to use their deposit to cover their last month’s rent as damage to the property may exceed the value of the deposit.
- Make sure you have contact details for the tenant as it may be necessary for you to take court action against the tenant, or their guarantor, if the cost of rectifying damage by the tenant and/or the value of the rent arrears exceeds the value of the deposit.
For help with a specific case email landlord and tenant solicitor Cate Searle or call her on 01273 609911
