It’s hardly surprising that landlords are considering increasing deposits to reduce their Covid-19 risk. Nevertheless, the Tenant Fee Act limits what you can do with deposits so, as a landlord, what are your options?
Saiful Ahmed, Legal Adviser at DAS Law, tells you what you need to know…
What are the rules around tenant deposits?
A deposit paid in relation to an assured shorthold tenancy must be protected in a government-approved scheme. The tenancy deposit protection rules have been amended several times since they were first introduced in 2007 but the most recent change came into effect from 1 June 2019 where landlords in England are limited to five weeks’ (rent equivalent under £50,000 per annum) deposit for new and renewed tenancies (or six weeks if the annual rent is £50,000 or more). There are also limitations on what landlords and agents can charge tenants.
On receiving a deposit on in relation to an assured shorthold tenancy, a landlord, must protect the deposit in an authorised scheme, and send details to the tenant.
What are the most popular options?
Landlords and their agents can choose to use either a custodial or insurance-backed scheme. Each scheme has its own rules about what initial requirements must be fulfilled in order to protect the deposit. The most popular options are the ones which are backed by the government, namely: Deposit Protection Service, MyDeposits and Tenancy Deposit Scheme.
What are the latest developments?
The Tenant Fees Act 2019 commenced 1st June 2019 and applies to all assured shorthold tenancies, tenancies of student accommodation and licences to occupy housing in the private rented sector in England. The act limits the amount a tenant can be charged for a holding deposit and security deposit and defines what a tenant can be charged in addition to rent. Certain fees and charges are permitted under the act, whereas others are defined as prohibited payments.
What can I charge for/not charge for under a deposit?
- Holding deposits are capped at one week’s rent;
- Security deposits will be capped at five weeks’ rent where the annual rent is less than £50,000 and six weeks’ rent where the annual rent is £50,000 or more;
- Default fees (fees which can be charged during the tenancy) are limited to the reasonable costs incurred in replacing a key or lost security device or interest on rent overdue by 14 days or more, capped at 3% above the Bank of England base rate.
How much deposit can I take?
From 1 June, landlords have only been able to take five weeks’ rent as a tenancy deposit (this increases to six weeks for properties whose rent exceeds £50,000 per year). Any amount over and above the capped amount is considered a prohibited payment. There are new rules for holding deposits, too. Landlords will be able to take a maximum of one week’s rent as a holding deposit.
If deposits are capped, what other steps can I take to reduce my risk?
In a landmark ruling handed down at York County Court, housing benefit discrimination has been judged unlawful and in breach of the Equality Act 2010. District Judge Victoria Elizabeth Mark declared for the first time that “rejecting tenancy applications because the applicant is in receipt of housing benefit was unlawfully indirectly discriminatory on the grounds of sex and disability, contrary to the Equality Act 2010.”
This case is a clear warning to other landlords and letting agents that they risk legal action if they continue to bar housing benefit tenants from renting.
Furthermore, landlords can carry out credit checks to assess how much the tenant can afford to pay and the sort of income they have. When a landlord is running a credit check on a tenant, they will only be able to see publicly available data on the resulting credit report.
In light of this, landlords should consider using a full tenant referencing service, instead of requesting just a simple credit check. Tenant referencing agencies specialise in tenant screening for landlords and can deliver much more detailed reports that will provide a more in-depth overview of your tenant’s suitability for your property.
Can I change my deposit for an existing tenant?
No. The deposit is protected at the start of the tenancy and must be returned to the tenant when they leave the property (less any lawful deductions). If there is a change in landlord due to the property being sold or if the landlord passes away the old landlord should pass the deposit to the new landlord if the property is sold.
Need more help?
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Disclaimer: This information is for general guidance regarding rights and responsibilities and is not formal legal advice as no lawyer-client relationship has been created. Note that the information was accurate at the time of publication but laws may have since changed.