Your Tenant can now claim 4 x your rent from you

As a landlord you’ll be aware that if you take a deposit, it must be registered with an approved provider. The rules around deposits, when to lodge, what happens if you register late etc, has been the subject to lots of costly court rulings.

The government have now clarified the position – but it does not make good reading for a landlord. So to re-cap, this is what you must do if you take a deposit from a tenant;

1 – Any deposit (even if a part payment), MUST (no ifs or buts) be registered within 30 days of receipt (so not the tenancy start date, if this is later), with an approved deposit provider

2 – Tenants, AND any person providing the deposit must be given within 30 days of receipt;
a) Prescribed information about the Tenancy Deposit Scheme
b) The Terms and Conditions of the scheme provider

3 – There must be a certificate signed by the landlord confirming that the contents of the Prescribed Information are true

4 – The tenant must be given the opportunity to sign to state whether they agree with the contents of the Prescribed Information

So, say for example that you pay the deposit into a scheme, but your paper work is not in order and you forget to send the schemes terms. You’d think that you’d be able to send later and be okay? Wrong – You’re in breach of the Act.

So what is the penalty?

This is the scary bit….

The tenant can claim return of the original deposit and a minimum of 1 months rent, up to a maximum of 3 months rent from you! Not only that, they can claim legal costs which are likely to run into several thousands of pounds if a solicitor is involved!

And it gets worse…

Unless you’ve set up the deposit correctly, you are prevented from evicting the tenant using Section 21 Housing Act 1988 provisions. What this means in simple terms is that you can only get your house back if the tenant has some other breach, like substantial rent arrears.

Now, imagine claiming possession on rent arrears grounds. A tenant will counterclaim for return of 4 months rent and costs! This would defeat any claim for possession based on arrears less than 6 months. A complete nightmare for a landlord.

To get around this, we’ve got an automated system in place. If a deposit is registered, all of the Prescribed Information and scheme Terms are produced when the tenancy is signed. The tenant and any deposit provider signs at this time. We then scan these as proof and send again by email to give them a further opportunity to review. Because the documents are dated and the scans time stamped, we know we’ll be safe.

Unless you have a foolproof system in place, you’ll want to consider whether taking a deposit is worth the hassle and substantial risks.