When your tenant pays a tenancy deposit on an assured shorthold tenancy, the landlord or letting agent must protect the deposit with a government-backed tenancy deposit scheme within 30 days.
Recently it emerged that Purplebricks had failed to comply with the deposit protection legislation. A supposed IT error meant that a number of deposits taken by the online estate agent had not been registered with one of the three government-backed deposit protection schemes designed to protect both the Landlord and the Tenant. Certain landlords who had used Purplebricks for their rental properties could now be liable to fines should the deposits not have been registered within the allotted time period.
In addition to possible fines, landlords who do not protect their tenant’s deposit could find their position significantly weakened should a dispute arise about rent arrears or property damage. In extreme circumstances, a judge may decide not to grant a landlord a possession order when trying to evict a tenant if the tenant’s deposit had not been protected within the required 30 days. Whilst the Purplebricks error has now been fixed, it shows the need for landlords to be vigilant when trusting a letting agent to act on their behalf, especially an online agent.
What is a tenancy deposit?
Often referred to as a security deposit, a tenancy deposit is the sum of money paid by a tenant prior to moving into a rental property. The deposit is typically paid within the first month’s rent, between when the tenancy agreement is signed and before the tenant moves in.
The rental deposit must be registered with a tenancy deposit protection scheme. Throughout the tenancy, the deposit is protected by the scheme. If there are rent arrears or property damage, then this can be taken from the deposit before it is returned to the tenant.
What is the tenancy deposit protection scheme?
For all homes rented on an assured shorthold tenancy after 6 April 2007, the landlord must put the tenant’s deposit in one of three government-approved tenancy deposit schemes. These three schemes are:
- Deposit Protection Service
- MyDeposits - includes deposits that were held by Capita
- Tenancy Deposit Scheme
There are separate tenancy deposit schemes in operation in Scotland and Northern Ireland
The schemes ensure that the tenant shall get their deposit back if the tenant meets the terms of the tenancy agreement, pays all rent and bills and doesn’t damage the property. At the end of the tenancy, the landlord must return the deposit within 10 days of agreeing the final amount to be returned, less any deductions. If there is a dispute regarding the deductions, then the deposit shall remain protected in the tenancy deposit scheme until the issue has been resolved.
Is the tenancy deposit protection scheme impacted by the Tenant Fee Ban?
Introduced on 1 June 2019, the Tenant Fees Act banned most letting fees and capped tenancy deposits. The aim was to reduce the costs that tenants face at the outset and throughout the duration of their tenancy, whilst also removing hidden costs. Whilst the Act banned many fees, this is separate from the refundable deposit that is registered with the Tenancy deposit protection scheme.
Tenancy deposits are legal, as long as they fall within the specified limit. As it stands, the only payments that landlords or letting agents can charge to tenants are:
- A refundable tenancy deposit, capped at no more than five weeks rent where the total annual rent is <£50,000, or six weeks rent where the annual rent is >£50,000
- A refundable holding deposit, used to secure a property, capped at no more than one weeks’ rent
- Charges associated with a tenant requesting early termination of the tenancy
- Payments capped at £50, or reasonably incurred costs if higher, for the variation, assignment or novation of a tenancy. This is to say, changing the tenancy agreement
- Utilities, bills, TV licence and Council Tax
- A default fee for late payments
- A replacement fee for lost keys
Do Landlords have to charge a deposit?
Landlords do not have to charge a deposit to their tenant, however it is strongly recommended to help cover costs if things go wrong, such as unpaid rent or the cost to fix property damage. If a landlord chooses to work with a letting agent or third party property management company, it is highly likely that they will be required to request a deposit.
What is an Assured Shorthold Tenancy?
This article refers to the deposits paid on assured shorthold tenancies (AST). An AST agreement sets out the terms for a tenant to live in the landlord’s property, and covers most domestic renting situations. It is normally a written agreement that outlines the responsibilities of both the tenant and landlord, and usually includes:
- Start and end date of the fixed-term tenancy agreement
- Rent monetary value to pay
- The date that rent is due
- Address of the rental property
- Name and details of all parties (tenant, landlord, letting agent)
- How and when the rent is reviewed
- Deposit amount and which scheme protects it
- When the deposit can be withheld
- Bills that the tenant will be responsible for
Just because a clause exists within a signed AST, does not mean it is necessarily enforceable by the landlord or letting agent. The law always takes precedence over anything in the agreement, regardless of if the written agreement is signed.
What sort of tenancy is considered an AST?
A tenancy will be considered an Assured Shorthold Tenancy if any of the following conditions are met:
- The tenant is renting from a landlord or housing association
- The tenancy started after 15 January 1989
- The property is the tenant’s main and only residence
- The landlord does not live in the property
The tenancy will not be considered an AST in the following situations:
- The tenancy started before 15 January 1989
- The rent is more than £100,000 annually
- Rent is less than £250 a year, or <£1000 in London
- The tenancy is for a business or licence premises
- The property is a holiday let
- Landlord is the local council
Don’t worry if you find all of this confusing, you certainly aren’t alone! A recent survey by the UK Landlord Survey 2021 found that 60% of landlords find disputes about deposits difficult. That is one of the primary reasons to use an expert letting agent like ourselves. Our team of dedicated professionals know the ins and outs of the rental market, ensuring that both the tenant and the landlord are protected and satisfied. We are always happy to help, please contact us with any questions you might have.