Landlords – Deposit laws will bite you if you don’t do it right

Monopoly HouseLandlords Need to be Aware of Deposit Legislation

In Property Eye today Rosalind Renshaw reported an industry scandal about deposits. In fact four in every ten landlords who called Landlords Action’s legal helpline have broken the law by failing to protect tenants’ deposits.

Since 2007 Landlords and Letting Agents have been required by law to protect tenant’s deposits using a government-recognised scheme within 30 days of the tenancy start date. In addition there is a requirement to issue the tenant with Proscribed Information so that they know where their deposit is, and how to retrieve it at the end of the tenancy.

The Penalties for Not Protecting Tenants’ Deposits

Where the deposit is not protected Landlords can face penalties of up to three times the value of the deposit, which is then awarded to the tenant. Less well known is that landlords may still face penalties even if they used an agent, if their agent failed to comply with the legislation.

In addition to the possible fines, where a landlord wishes to gain possession of a property through Section 21 they will be unable to do so unless and until the deposit is legally protected. A court order for possession cannot be granted without proof that the deposit is protected in a recognised scheme, and may be refused if the deposit was not protected when it should have been.

The founder of Landlord Action, Paul Shamplina commented: “There are too many landlords that still do not know enough about being a landlord and their responsibilities.

Many are failing to comply with deposit protection rules and this is having a knock-on effect when landlords wish to evict through Section 21. The simple fact is, ignorance will not solve the problem.”

Landlord Action are seeing more landlords contacting them because of legal action being taken against them by tenants for not protecting the deposit. Tenants appear to be becoming increasingly aware of the legal situation where many landlords are still in the dark.

The problem is that many landlords will struggle to find a solicitor to act for them because the legislation is so straightforward, and there is no defence for not protecting the deposit. There is a really clear guideline for landlords about tenants’ deposits on the Government website.

The Property Eye article goes on to quote Eddie Hooker of MyDeposits who raises the point that not only should the deposit be protected but the tenant should be served with the Prescribed Information. He says “The majority of legal cases we see surround the incorrect issuing of the Prescribed Information, or failing to issue it at all.”

Is My Deposit Protected?

Riley Marshall ensures their clients stay within the law to protect their interests. However we are aware that some landlords do not know their obligations in regard to deposits. In fact we highlighted this issue in 2012 in our blog post – How Secure is Your Deposit? You can read that article here.

Don’t risk falling foul of the legislation on deposits. If you are unsure of the status of your deposit you can use this handy tool on the Shelter Website which will check whether your deposit is protected. You just need your postcode, tenancy start date and the amount of the deposit.

Court Ruling is Good News for landlords and tenants

Landlords of rental properties to let can feel secure in taking rent in advance

Court ruling allows landlords to feel secure about letting to overseas tenants

The latest ruling in the case of Johnson vs Old clarifies the distinction between rent paid in advance and security Deposits held in case of loss or damage to the property.

You will probably have been aware of the ongoing case between Johnson and Old, which questioned whether money taken in advance for rent was in fact a Deposit in the eyes of the law – and as such should be protected by the landlord in an approved scheme.

For those not in the know, in this case the tenant could not prove a reliable credit history before letting the property. So she was asked to pay the first 6 months in advance. After renewing a couple of times (paying six months rent in advance each time)  the tenancy finally became a periodic tenancy, and the tenant simply paid each month in advance. Later the tenant fell into arrears and when the landlord served a Section 21 notice the tenant argued that it was invalid, because the initial 6 months rent paid in advance was a ‘deposit‘, and so it should have been protected. In the initial case the judge agreed with the tenant and ruled that it was a deposit. As it had not been protected the landlord would then have to return the whole 6 months rent and may have been liable for an amount up to three times that initial amount.

This is good news for everyone involved in letting, the landlord, agent and the tenant all benefit from the decision of the court of appeal.

Paying six months rent in advance where tenants who do not fit into strict financial guidelines is common practice in the industry. It allows them to secure property if there are credit issues; where tenants are coming in from abroad; or have just started work etc. to be able to rent a property when they don’t tick all the boxes in terms of financial references. This money is never meant as a tenant’s deposit it is simply to ensure rent is paid during the fixed term of the contract, where it is harder for a landlord to accelerate a Notice for Possession through the courts if it is necessary because of non-payment of rent.

If landlords felt that this was not a secure and simple option for them they would be unlikely to rent property to tenants in this position, which would be bad for the rental sector, as one of the reasons people are renting is because they have financial irregularities or they are in a job which moves them around the globe regularly. This would reduce the market for Landlords and their agents to be able to let to, and it would reduce the stock of properties available to tenants.

We can now all get back to the business of renting property

We recognise the need to secure tenants deposits at the beginning of the tenancy, and to disburse them appropriately and transparently at the end of the tenancy, and we always ensure this is done at Riley Marshall. We welcome this sensible ruling on a cynical suit, brought by a tenant who could not meet her financial commitments, and so turned on her landlord to shift the blame.

If you want to find out more about deposits and the procedures for protecting them please go to our blog ‘How secure is your deposit?’. We are always happy to answer questions about the letting process, renting property, deposits or references. We rent and sell property around South West London. So if you are a landlord or a prospective tenant please call us on 020 7394 1160.

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What is an inventory?

What is the difference between an inventory and schedule of condition?
In our recent blog about deposits we mentioned inventories as a way of ensuring that a deposit can be properly utilised by landlords, should they need to claim for damages against a tenant’s deposit. Here we explore the terminology, as well as examining why an inventory is such a useful legal tool in protecting a landlord’s property.

An Inventory is basically a list of the contents of a rental property, and a Schedule of Condition is the description of the condition of these contents, as well as a record of the condition of the fittings, flooring, décor, and exterior space if any. In rental terminology they are usually combined, together with a photographic record, and referred to simply as an inventory. For the purposes of this article that is what we mean when we use the word inventory.

Inventory and schedule of condition

When to check it
The inventory should be prepared following any preparatory improvements to the property and before the tenant actually takes possession of the keys. In some cases landlords give the tenants the document and ask them to agree the contents during the first week/month of the tenancy, but this can make it difficult to prove the original condition of the contents if the tenant disputes the inventory.

We have noticed some online sources recommending checking the inventory every 3/6 months, along with a routine inspection of the property. This is hardly feasible as the tenants will have their own belongings in the property and may feel uncomfortable to have their cupboards rifled through to check if your teaspoons are still in situ. Even if the property is let unfurnished you will not be able to tell the full condition of décor and carpets with the tenant’s own belongings in place.

The only meaningful time to carry out a full inventory check is when the tenant has moved out and is ready to hand over the keys. Having said that, it is still possible to make use of the inventory during the tenancy if queries or problems arise. For instance it can be referred to if changes are noticed during a routine visit to check on the property.

So ideally the inventory is checked and agreed by both parties at the beginning of the tenancy and again at the end. At this final check any changes can be noted, and then a plan of action can be drawn up to deal with any discrepancies.

recording damage and previous condition is vital

Recording previous condition is vital so that responsibility for damage can be proved

Using the inventory as a record and reminder
If there are only minor changes, and they could be described as fair ‘wear and tear’, no further action should be taken by the landlord. If items are missing or damaged it should be agreed whether these will be replaced by the tenant (within an agreed timescale), or replaced by the landlord and billed to the tenant’s deposit. If cleaning is required the landlord can appoint professional cleaners and charge the tenant.

As some tenancies last for years it is very helpful to be able to remember the contents and their condition at the beginning. We can all forget, but if everything is documented it is easier to prove (and harder to dispute) if something has changed.

Settling Disputes
If the landlord and tenant cannot agree on the way in which a deposit is going to be used then the case can be referred to a Dispute Resolution Service and the inventory will form a very important part of the landlord’s evidence especially if there are photographs to back up the written evidence.

Perhaps more importantly if there is this type of careful written record a tenant is less likely to argue. This can save a lot of time and expense haggling over what should be done at the end of the tenancy.

Inventories should be checked and signed by both parties

It is important that the inventory is agreed and signed by Landlord and tenant at the beginning of the tenancy

How to prepare it
The preparation of inventories is the subject of another article entirely. However if you use a reputable agent they are likely to employ an inventory clerk, either in-house or as a specialist service, who will be experienced in writing these documents in order to be most effective for the landlord.

As the landlords agent Riley Marshall would always recommend the preparation of a professional inventory for each tenancy, and we can make all the arrangements for this. In our own portfolio of properties we would no more let a property without an inventory than we would without Building’s Insurance or a Tenancy Agreement.

 

How secure is your Deposit?

Some Landlords and Tenants are not aware of the correct procedure for dealing with a security deposit for rental property. So we thought it worth exploring what a deposit is, what it is for, and what is a Tenancy Deposit Scheme?

Tenants deposit

What is a deposit and what is it for?

At the risk of stating the obvious a deposit is an amount of money paid by a tenant at the beginning of a tenancy to ensure their intention to respect and look after the fixtures, fittings and belongings supplied in a rental property.

While this seems self-evident it is worth explaining that the money belongs to the tenant, unless by failing to carry out their legal obligations they cost the landlord money. In effect it is being held in trust in case it is needed to pay for any costs that are a direct fault of the tenant. If this happens the landlord can claim against the deposit for damage or loss when the tenancy ends.

Damage does not include the expected fair ‘wear and tear’ that could be expected from the length of term of the tenancy. For instance if a tenant is in place for a number years it is reasonable to expect the landlord to redecorate, whereas if a tenant has allowed the garden to become a jungle in that time the landlord could legitimately charge the tenant the cost of restoring the garden to its original condition.

Riley Marshall recommends having a professional inventory prepared and agreed at the beginning of the let. It should include a detailed written Schedule of Condition and adequate photographic evidence of the condition of the property. Their Letting Manager Zelda Austin explains “it is so important to be able to prove the validity of your claim against a tenant, the fact that we have such detailed records to refer to usually avoids any problems, because the inventory reminds tenants what the property was like when they moved in and they know we have the evidence to charge their deposits if they have caused any damage or loss”

Deposits must be protected in one of the government-approved tenancy deposit schemes. Many agents can provide this but Landlords and Tenants should check what provisions are made to safeguard the money during the tenancy.

The terms of holding the deposit should be clearly laid out for the tenant in the tenancy agreement and the tenant should be issues with the Proscibed Information required by the legislation which advises the tenant of where their deposit is held and the process involved in getting it back at the end of the tenancy.

The importance of having a thorough inventory of the property cannot be stressed too strongly, and to read more about what an inventory is and why it is important to landlords and tenants click through to our blog post ‘What is an inventory’?