Image credit:Tenancy Deposit Schemes
For almost a decade now, landlords have already been required to put their tenants’ deposits to safety using a tenancy deposit protection scheme. This law has been made effective last 2007.
This may sound confusing to landlords who didn’t know that deposits do not end in taking them from tenants. With that, we have come up with a few FAQs about how the tenant’s deposit works, and what you are required to do with it as an owner.
Tenancy Deposit defined:
Technically, a tenant’s deposit is simply a monetary deposit. It is supposed to cover whatever unforeseen cost that is caused by the tenant. This can be used to pay for any property damage that are caused by the home dwellers, or it can also be used to pay for the tenant’s missed payments. A tenant’s deposit is just one of the ways in which landlords protect their businesses from unexpected costs.
Are you required to ask for a deposit?
The answer is No. But why wouldn’t you? You are in the right position to demand for a deposit and it is necessary for you to make sure that your business is secured. Besides, a deposit is not entirely a loss for the tenant, it is simply an ‘advance’ payment for a cost that is yet to come up. If no cost arises, the tenant is entitled to take the deposit back as he/she ends tenancy.
The amount required as a deposit:
Typically, landlords require a deposit that is equivalent to one month rental. Nonetheless, it isn’t impossible that a landlord charges more than that, especially if there are more things at risk of expense, i.e. if the home is fully furnished, the tenant has a household pet, etc.
Tenancy Deposit Scheme explained:
UK law requires landlords of properties under an assured shorthold tenancy to place their deposits in one of the government’s three tenancy deposit schemes: Deposit Protection Service, MyDeposits, and Tenancy Deposit Scheme. You should keep in mind though, that the Tenancy Deposit Scheme is solely the responsibility of the landlord. It doesn’t matter if you have an agent or not.
The reason why the TDS was introduced is to ensure that the tenants’ deposits are handled in a fair manner, so as to make sure that the tenants who met the policies are able to get their money back as soon as they end their tenancy. This also helps the landlords in securing themselves in case some costs arise. They can fairly use the said deposit to pay for damages and to get paid for their tenants’ missed rent payments. The main benefit of the TDS is to organize what happens to the deposit so as to avoid conflict between the two parties. This shall lessen the chances for disagreements and make resolutions more accessible to both the tenant and the landlord.
Who are affected by the TDS policy?
The Tenancy Deposit Scheme applies to all the landlords in England and Wales who took a deposit from their tenants and the tenancy is under an assured shorthold tenancy. This applies to tenancy made or renewed after April 6th 2007.
What if you do not follow the TDS rule?
Since the Tenancy Deposit Scheme is a legal obligation to landlords, failing to comply with the said policy can lead you to different consequences. For one, you can end up giving your tenant three times the amount of the deposit on top of the deposit amount. Second, your tenant can also have a defence to any of your claim regarding rent arrears. This is why every landlord should never neglect following the TDS policy and be able to submit the deposit within 30 days of receipt.
After complying to the TDS policy:
Once you have paid the deposit to your preferred deposit scheme, you should also inform your tenant about the details regarding his/her deposit. Included in the info that should be shared are: the address of the property being rented; the amount of deposit that you have submitted; the deposit scheme that you chose to use; contact info of the TDS; contact details of any third party entities involved in protecting the deposit (for example, letting agents); detailed procedure on how to re-gain the deposit; detailed steps that the tenant can take in case there is a dispute on the deposit.
It is legally imperative that you share to your tenants all valuable information about the deposit. You may be held liable to the law if you do not comply with this simple procedure. This is why in informing your tenant about all these, you also need to let him/her sign a document that verifies what information you have shared with them regarding their deposit.
Tenancy Deposit Policy Costs:
Different kinds of TDS comes with different costs. There are schemes that come with premium rates and there are schemes that are free of charge.
Who can take money out of the submitted deposit?
As a landlord, you can deduct money from the deposit to spend for duties listed on your agreement with the tenant.
It can be for cleaning purposes, if the tenant agreed to clean up but failed. It can be deducted for fixing damages if the damage is caused by the tenants, and it can also used to cover for tenants’ unpaid rental if they leave the place while owing you rent. It is also possible to deduct money from the TDP to cover for lost or missing items. If the TDP cash isn’t enough to pay you for everything that the tenant owes you, then you can take the next step which is to start court proceedings.
At the end of the tenancy, the deposit will be given back to the tenant and/or the landlord, depending on what you have agreed on prior the deposit. If the agreement is clear about how much each party will get by the end of tenancy, the scheme will return the money as stated on the agreement. But in the event of a dispute, you should inform the TDP provider immediately so that they can assist you in deciding what is fair. iLetProperties