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.

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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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