Tenancy Deposit Scheme

LANDLORDS!

ARE YOU AWARE OF THE NEW TENANT DEPOSIT PROTECTION LEGISLATION?

DO YOU KNOW THE PENALTIES FOR NON-COMPLIANCE?

ON THE 6TH APRIL 2007 LEGISLATION CAME INTO FORCE DESIGNED TO PROTECT TENANT DEPOSITS FROM BEING UNREASONABLY WITHHELD. As a result of this, for all assured shorthold tenancies created on or after that date where a deposit was taken, it is a legal requirement that the tenancy and deposit is registered with one of three approved schemes. Two of these schemes are ‘insured’ options, where the agent or landlord retains the deposit monies but is regulated by the scheme manager, and the third is the ‘custodial’ option where deposit monies are given into the possession of the custodial scheme manager, only to be released by agreement between landlord and tenant.

EVEN IF YOU ARE A MEMBER OF ONE OF THE INSURED SCHEMES YOU CAN TRIP UP ON THE WORDING OF YOUR TENANCY AGREEMENT; IF YOU USE THE CUSTODIAL SCHEME YOU MUST LODGE A DEPOSIT WITHIN SPECIFIC TIME LIMITS.

IF YOU GET IT WRONG, THESE ARE THE CONSEQUENCES:

THE COURT WILL ORDER YOU TO RETURN THE DEPOSIT TO THE TENANT.
THE COURT WILL ORDER YOU TO PAY A FINE OF THREE TIMES THE DEPOSIT – TO THE TENANT.
THE COURT WILL REMOVE YOUR RIGHT TO ISSUE A SECTION 21 NOTICE BRINGING THE TENANCY TO AN END –

YOU WILL NOT BE ABLE TO GAIN POSSESSION UNTIL YOU COMPLY WITH THE LEGISLATION.

ON A SIX-MONTH TENANCY, ASSUMING YOU TAKE A DEPOSIT OF SLIGHTLY MORE THAN THE RENT, THIS CAN COST YOU MORE THAN HALF THE RENT PAYABLE DURING THE TERM – AND YOU LOSE YOUR RIGHT TO POSSESSION!

Okay, that’s the bad news -

DON’T WORRY, WE’VE GOT IT COVERED.

This new legislation really shouldn’t have come as a surprise, but many Landlords have been caught unawares. It was first mooted over two years ago, when a pilot scheme was introduced on a voluntary basis. As an agency with a ‘best practice’ principle, ABC Estates joined The TDS Insured Scheme at the launch of the pilot, and built up a good working relationship with the scheme managers long before membership became mandatory.

The Scheme makes it a Statutory requirement that certain documentation is issued, and lays down the format that these documents must take and the wording they must contain.

The requirements are:-

A ‘lead clauses’ document, which explains the working of the Scheme, which must be issued with, but as a separate document from, the Tenancy agreement. This document consists of four pages of clauses, the wording and order of which must follow exactly the format laid down by the Scheme Managers.
Specific wording to be used in Tenancy Agreements for the Clauses describing the taking, holding, purpose and repayment of deposits – again, which must follow exactly the format laid down by the Scheme Managers.
A leaflet issued by the Scheme managers which must be given to tenants with their Tenancy Agreement.
Registration of the deposit with the Scheme managers.
Production of a Registration Certificate, which must be supplied to tenants within 10 working days of the commencement of the tenancy and the taking of the deposit.

These are the requirements at the start of the tenancy. There are further requirements which come into force at the termination of the tenancy, mainly by way of a timetable for the notification of any proposed deductions from the deposit. This states that within 10 working days of the end of the tenancy, the landlord or agent must inform the tenant of any proposed deductions. After this time, there is a period of 20 days in which to resolve any disagreement between Landlord and Tenant, and a further time limit for referral of the dispute to the Independent Case Examiner appointed by the Scheme Managers; if this final time limit is missed, the Scheme Managers may decline to decide the dispute, leaving the expensive option of action through the Courts to gain an Order for the settlement of any claim.

Now, as any Landlord knows, it is extremely unlikely that an outgoing tenant will be able to provide receipted bills for Gas, Electricity, Council Tax and Water charges within the initial 10 day period, not least due to the slowness in providing final bills by many utilities; this means that in most cases, the Landlord will have to notify the tenant of his intention to make deductions from the deposit to cover possible non-payment of these bills, thus starting the Dispute process. This can be resolved by agreement in the following 20 day period without causing a referral to the Scheme Managers, so given that there is a total of 30 days to get final bills in, this may not become as large a problem as at first seemed the case. Landlords with properties managed by ABC Estates have the satisfaction of knowing that our documentation is legislation-compliant, and that we have systems in place to ensure timetable requirements are met at each stage of the tenancy.

Where things become more complicated is when a Landlord wishes to make deductions for damage. In theses cases, the Landlord, if the tenant fails to agree the deductions (which must be in writing and held on file), the matter is decided by an Independent Case Examiner (ICE) on the basis of evidence submitted by both parties. This is where a comprehensive ingoing inventory is crucial. A poorly written or incomplete inventory can be easily challenged by a tenant, and the ICE has to decide such matters as the level of payment due to a Landlord when a sofa marked on the inventory as ‘slight wear on arms’ at the start of the tenancy is described as ‘arms worn through, tears to one seat cushion and seat back’ at the end of the tenancy. Even if (by no means a given) the tenant signs the ingoing inventory, the ICE has to make a judgement on partial evidence and conflicting claims. Landlords with properties managed by ABC Estates have the satisfaction of knowing we make a DVD record of the property and contents to prove the state of the premises at the start of the tenancy.

As consultants to Landlords, we have been asked ‘how do I get round this legislation?’ The blunt answer is, you can’t. The only way to avoid being bound to meet the legislative requirements is not to take a deposit at all – something no Landlord should do.

If you would be interested in finding out how we can help you to stay on the right side of the law, please call us to discuss your individual circumstances.

ABC ESTATES – WE’VE GOT IT COVERED