In this blog, we explain everything there is to know about deposits when renting a property.
Since the Tenant Fee Act 2019, the legislation on deposits has become a little more complicated.
We will cover holding deposits, tenancy deposits and the process of getting your deposit back at the end of a tenancy.
A landlord or agent can take a Holding Deposit from a tenant to reserve a property whilst reference checks and preparation for a tenancy agreement are undertaken.
Landlords and agents cannot ask a tenant for more than one week’s rent as a Holding Deposit. If the amount of Holding Deposit exceeds one week’s rent, the amount of the excess is a Prohibited Payment. One week’s rent is defined as the amount of annual rent payable in respect of the tenancy, divided by 52.
Only one Holding Deposit can be charged per tenancy application – it cannot be charged to each tenant applying for the property. If the property is for sharers (e.g. Students) the Holding Deposit should be split equally between the sharers.
A Holding Deposit can be held for up to 15 calendar days; what is known as the ‘Deadline for Agreement’. This means that from taking the Holding Deposit, the tenancy agreement must be entered into (signed by both parties and dated) before the ‘Deadline for Agreement’. However, the landlord and letting agent can agree with the tenant in writing that a different day is to be the ‘Deadline for Agreement’. This means that the standard 15 calendar days can be extended if necessary.
REPAYING THE HOLDING DEPOSIT
The landlord or letting agent who received the Holding Deposit must repay it to the tenant if:
- The landlord and tenant enter into a tenancy agreement.
- The landlord decides before the deadline for agreement not to enter into a tenancy agreement.
- The landlord and tenant fail to enter into a tenancy agreement before the Deadline for Agreement.
If one of the above applies, the Holding Deposit must be refunded within 7 calendar days of the date of that decision or the ‘Deadline for Agreement’.
With a tenant’s written consent, the landlord or agent may ‘repay’ the Holding Deposit by allowing the tenant to deduct the equivalent sum from the first payment of rent.
RETAINING THE HOLDING DEPOSIT
The landlord or agent who received the Holding Deposit can keep it if:
- The tenant fails a Right to Rent check regardless of when the deposit was accepted.
- The tenant provides false or misleading information to the landlord or letting agent, which the landlord is reasonably entitled to consider in deciding whether to grant the tenancy because this materially affects their suitability to rent the property.
- The tenant notifies the landlord or letting agent before the deadline for agreement that they have decided not to enter into a tenancy agreement.
- The tenant fails to take all reasonable steps to enter into a tenancy agreement.
A Tenancy Deposit is money held by the landlord/agent as security during the period of the tenancy and reserved for any damages or defaults on the part of the tenant. The new rules state that Tenancy Deposits are capped at five weeks’ rent where the annual rent in respect of the tenancy is less than £50,000 a year and six weeks’ rent where the annual rent in respect of the tenancy immediately after its grant, renewal or continuance is £50,000 or more a year (not really applicable in our Derby and Burton!)
Taking more than what is allowed in either case would mean that the amount in excess is a Prohibited Payment.
Taking a higher tenancy deposit for tenants with pets is not allowed. The maximum 5 or 6 weeks rent for Tenancy Deposits cannot be exceeded under any circumstances.
The Tenant Fees Act does not prevent landlords and agents from claiming damages for breach of tenancy agreement, so damage done by pets can still be claimed for. If the deposit isn’t enough to cover the damage, landlords may consider legal proceedings.
Where a prospective tenant already has a pet before they enter the tenancy agreement, the rent for the tenancy will be set at a level for the wear and tear that the pet will cause. Agents will be able to charge a higher monthly rent for tenants with pets, so long as they make the prospective tenants aware of the additional cost at the earliest available opportunity.
The Tenancy Deposit Process
The first thing to make clear is that a letting agent will take instruction from the landlord at all times during the deposit repayment process. The deposit is not ‘kept’ by the agent under any circumstances.
A landlord or agent must register the deposit with a Government backed scheme within 30 days of receiving it from the tenant.
There are several schemes available and two types of scheme. A custodial scheme is when the deposit is physically held by a third party in a separate bank account. An insurance based scheme is where the landlord or agent keeps the deposit themselves in a separate clients account. At Professional Properties, we advocate the use of a custodial scheme as we feel this offers increased security for the tenancy deposit. The scheme we use is the Deposit Protection Service (DPS).
This is how the custodial scheme offered by the Deposit Protection Service works.
The deposit is held by the DPS for the duration of the tenancy. The DPS is the UK’s largest provider of deposit protection, so the deposit money is safe and secure.
At the end of the tenancy, the tenants deposit will be returned once agreement has been reached with the tenant and the landlord or letting agent on how and how much should be repaid.
How Does the Custodial Scheme work?
Online access to the deposit
It is easy for the tenant to access the deposit via the DPS website. The Deposit ID and Repayment ID are always used for any online communication.
Once the deposit has been accessed on the site, the tenant can:
- View the details of the deposit
- Update any contact details
- Request a repayment at the end of the tenancy
- Access all information on the DPS processes
When the tenant moves out, they must provide the DPS with their new postal address. It is important that the tenant does this as the landlord or letting agent cannot do it on their behalf.
What happens when the tenant moves out?
At the end of the tenancy, the tenant and the landlord/agent need to agree how the deposit will be repaid.
The DPS will need to be contacted by BOTH parties before the deposit can be repaid. Both parties will need to log in to their respective accounts and submit their instructions. This can also be done using a paper form.
What happens if both parties cannot agree on the deposit repayment?
If an agreement cannot be reached on how the deposit should be repaid, the DPS offer an independent Alternative Dispute Resolution (ADR) service to resolve the dispute. It is free to use and avoids the need for any potential court action.
Once both parties have agreed to use ADR, any relevant evidence is submitted to the legally trained adjudicators to consider. The ADR decision is final and cannot be appealed.
If you have any questions about deposits , please don’t hesitate to contact one of our team on 01332 300196