I say, I say, I say, what is a rental deposit? Well, it all depends who you ask. It could be:
A. A fair sum of money taken from a tenant, held safely for the duration of the rental, and returned minus any costs for non-wear and tear type damages (the textbook answer).
B. A windfall bonus for landlords to be held back from tenants for no good reason (the unscrupulous landlord's answer).
C. An extra month's rent in advance which allows tenants to withhold the final month's payment, and not shell out for any damage caused (the undesirable tenant's answer).
D. A pain in the neck that causes no end of disputes (the managing agent's answer).
In a bid to sort out this unhappy state of affairs the Government has decided to introduce a new compulsory tenancy deposit scheme.
So from 6th April 2007 all landlords in England or Wales renting out property under an assured shorthold tenancy (AST) will have to sign up to the scheme and abide by its regulations. Below is a run through how it works.
Designed to safeguard tenants' money, the new scheme hopes to put an end to the protracted wrangling between landlords and tenants through a new alternative dispute resolution (ADR) service.
There will be a legal obligation for landlords who take a deposit to join either a custodial scheme, or an insurance-based version. The service will be free to tenants and will be run by three companies - two based on the insurance model (Tenancy Deposit Solutions and The Tenancy Deposit Scheme) and one based on the custodial model (The Deposit Protection Service).
Here's how they work:
1. The custodial scheme: The tenant gives the landlord the deposit which the landlord hands straight over to the custodial scheme.
At the end of the tenancy, if the landlord and tenant agree how the deposit should be apportioned, either party can notify the scheme, which will pay out the money as agreed.
The custodial scheme is free for both sides to use, but part of the interest accrued on the deposit will be used by the administrators to pay for the running of the scheme. The remainder will be given to the tenant/landlord.
If there is a disagreement over the deposit, they can turn to the alternative dispute resolution service (ADR). But if both parties agree to use the ADR service, they have to respect its verdict.
If one or more sides want to opt out of the ADR, they are free to take their gripes straight to the legal system.
2. The insurance-based option: It is thought likely that landlords will prefer to join an insurance-based version of the scheme, where they pay a fee to an appointed third party, but hold onto the deposit themselves.
Landlords must tell their tenants within 14 days which scheme they are using and pay the money into it. At the end of the tenancy, the tenant should get their money back within ten days provided there is no dispute.
If there is a problem at the end of the tenancy the landlord will be obliged to hand the disputed amount of money over to the administrator of the scheme until both parties come to an agreement, usually via the ADR service.
Big penalties are planned for landlords who take deposits without joining a tenancy deposit scheme, but the hassle and costs involved could mean that some landlords will try to avoid the schemes entirely.
If your landlord is not part of any deposit scheme you can apply to your local county court and the court can order the landlord or agent to either repay the deposit to you or protect it in a scheme.
If your landlord or agent has not protected your deposit, they will be ordered to repay three times the amount of the deposit to you.
If your tenancy starts after 6th April 2007, your landlord or agent must protect it using a government authorised tenancy deposit scheme. Within 14 days, the landlord or agent is required to give you details about how your deposit is protected, including:
1. The contact details of the landlord or agent
2. How to apply for the release of the deposit
3. Information explaining the purpose of the deposit
4. What to do if there is a dispute about the deposit
• With your money in the scheme, you can rest assured that your deposit will be safe because either the scheme's administrator will repay your losses, or a court will force payment plus a sum of three times the deposit
• Your deposit should be returned to you within ten days of the scheme being notified, but in an insurance-based scheme you may be able to have it returned on the last day of your tenancy.
Although your deposit is protected by the scheme, you should still be mindful of your responsibilities as a tenant. So it is a good idea to make sure that when you sign your tenancy agreement that you:
• Keep a detailed list of contents (furniture and fittings).
• Record the condition of the property and its contents (photographs are a good idea).
• Check the circumstances in which your landlord or agent could have a claim on your deposit.
• From 6th April 2007 you will be obliged by law to join a tenancy deposit scheme
• If you choose the insurance-based scheme you will need to pay a fee (as yet undecided)
• If there is a dispute you will have to transfer the amount that is under dispute to the scheme until an agreement is reached.
• The custodial scheme will be free to you, but you will have to pay over the whole amount of the deposit.
• In the event of a disagreement the disputed amount will remain in the scheme until a decision is made.
• If you don't lodge the deposit with a scheme within 14 days of the tenancy's start, you may be unable to regain possession of the property, and be fined three times the deposit amount.
Property professionals seem happy with the scheme. Cassandra Tucker, Lettings Manager for Barnard Marcus letting agents, said: "We fully support the new legislation. In fact, as a responsible letting agent we have been a voluntary member of the Tenancy Deposit Scheme for Regulated Agents since 2004, so our landlords and tenants will be fully prepared when the law comes into effect."
Judienne Wood, Lettings Director of Kinleigh Folkard & Hayward, also gives it the thumbs up: "I fully support and welcome this mandatory legislation. From April, landlords and tenants alike will have a greater degree of protection and piece of mind over deposits held for rental properties, which is normally six weeks' rent.
"In the very few cases where landlords employ ‘bully boy’ tactics and tenants push their luck, disputes over deposits will be resolved independently. Ultimately, this government regulation will uphold standard industry practices in the residential lettings market and breed good behaviour by landlords and tenants."
But what of tenants? Reseach from Tenancy Deposit Solutions Ltd (TDSL) reveals that a week prior to the launch of the scheme only 15 per cent of tenants are aware of the changes. .
David Salusbury, chairman of TDSL, says: "While familiarity among landlords is growing steadily, tenants appear to have little knowledge of the new regime. Fewer than one in seven tenants has even heard of it. It’s important that tenants get up to speed and know their rights – after all, tenancy deposit protection is for their benefit."
Wise words - so if you plan to spend the weekend looking for a new home to rent, remember to ask how your deposit will be protected.
Tenancy Deposit Protection Government information on the scheme, with advice for landlords and tenants.
Tenancy Deposit Solutions Insurance-based scheme jointly owned by the National Landlords Association and Hamilton Fraser Insurance (HFIS plc).
The Tenancy Deposit Scheme Insurance-based scheme run by the Association of Residential Letting Agents, the National Association of Estate Agents and the Royal Instituion of Chartered Surveyors.
The Deposit Protection Service Free custodial scheme managed by Computershare Investor Services Plc, a global business with more than eight years' deposit protection experience.
Nikki Sheehan
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