Following recent changes to tenancy deposit protection rules in England & Wales, more landlords could be required to use government-approved schemes to safeguard money paid by new tenants upfront.
On October 1st 2010, the Assured Shorthold Tenancy (AST) threshold was lifted from £25,000 a year to £100,000 a year.
This means that landlords with tenancies up to this higher amount will default to an AST and will be required to protect tenant deposits in a government-approved deposit protection scheme.
Rules on deposit protection were first introduced in 2007 to provide safeguards for those renting property and prevent rogue landlords from taking advantage by demanding money be held back for cleaning or repairs, for example.
Through the legislation, tenants are guaranteed to get their deposits back at the end of their tenancy, provided they have not caused any damage to the property.
It applies to all ASTs, which are the most frequently used tenancy agreements in the lettings market and are usually arranged over a six or 12-month period.
Under the previous rules, landlords had to receive less than £25,000 a year in rent for their tenancy to be classes as an AST.
This meant that tenancies with higher annual rents, which were seen as contractual tenancies, were not covered by deposit protection laws.
So although it was seen as good practice to do so, landlords were not legally obliged to safeguard lump sums.
But as the Deposit Protection Service (DPS) pointed out, these rules did nothing to protect certain groups of tenants who were paying more than £25,000 in annual rent bills.
These did not just include wealthy businessmen renting penthouse apartments, but also students and those in large house shares.
“While is it natural to think of a high value tenancy and conclude that we are in the realms of the rich and successful, often the opposite is true,” explained DPS director Kevin Firth.
“Students, for example, often group up and move into large houses, paying a combined rent that easily exceeds £25,000 annually.
“People working hard to get through university should be afforded the same protection as young professionals or families renting a smaller house.”
Now the law has been changed and landlords whose tenancies fall into this new higher bracket will be required to use one of three certified schemes to make sure their tenants’ deposits are protected.
However, the advice issued to landlords by the DPS is to protect all deposits now, regardless of whether these new rules apply, as it is “better to be safe than sorry”.
Indeed, the organisation pointed out that until there is total legal clarity in this particular area of government policy, it is best for landlords to safeguard deposits just in case.
In addition to the DPS, there are two other government-approved deposit protection schemes. These are MyDeposits and the Tenancy Deposit Scheme. The latter are insurance-based schemes, while the DPS is a custodial scheme.
Landlords who fail to comply with the law risk being taken to court by their tenants and could end up paying a penalty worth three times the amount of the original deposit, as well as the deposit itself.
They may also be unable to gain possession of their property once the tenancy comes to an end.
- Landlord and Tenancy News from Lawpack: Give tenants the right information concerning their tenancy deposit protection with our Section 213 Notice.
Published on: October 11, 2010