It’s a situation that still causes confusion and some landlords are ignorant of their legal duties which is why the landlord deposit rules need to be explained to avoid breaking the law – and being left with a hefty financial fine.
Firstly, this article explains English law and the situation for Scotland’s landlords is explained below.
It’s important to appreciate that all landlords must place their tenant’s deposit into a Government-recognised scheme such as MyDeposits, TDS or DPS.
That’s because under the Housing Act 2004, a tenant’s deposit needs to be ‘protected’ – which means it is placed with an independent third party – within 30 days of the landlord receiving the money and you must tell the tenant where it is being kept.
This will be part of the statutory information that a landlord gives to their tenant and to anyone else who pays the deposit. If there’s a guarantor, then they should be copied in.
For those landlords who take the deposit before the tenancy begins, for example, they may have foreign tenants or have a student let, then they need to protect this within 30 days of receiving it, even though the tenancy may not have begun.
Professional landlord blog
Another issue that may cause concern and which a professional landlord blog will have highlighted recently is that under the Tenant Fees Act 2019, a landlord can now only claim up to a certain amount as this is deemed as a ‘permitted payment’ under the law.
If the annual rent is less than £50,000 then the deposit cap is up to five weeks’ rent. It is six weeks’ if the rent is more than £50,000 per year.
In addition to giving your tenant a copy of the deposit scheme’s certificate and their leaflet which will meet most of the law’s requirements, you will need also to highlight to the person paying the deposit and the tenant that there is a clause specifically written in the tenancy agreement.
This clause will also explain the grounds under which deductions will be made from the deposit, such as paying for cleaning, rent arrears, damage and legal expenses.
One of the big issues currently is that the rules have now been in place for 10 years and landlords are still falling foul of the law.
Landlord news outlets
It’s for this reason that landlord news outlets report regularly on landlords who have either ‘forgotten’ to protect the deposit or didn’t know about the rules and have been fined.
To help focus attention, for those landlords who have not protected their tenant’s deposit, then the tenant can bring a claim for up to three times the deposit’s value if the rules have been breached.
Essentially, there’s no way to avoid this fine if you have breached the rules – and worse – if you’ve renewed a tenancy without protecting the deposit then the fine will double each time.
The other downside for a landlord who ignores the deposit protection rules is that they will not be able to serve a valid Section 21 notice should they want to evict their tenant.
If you do want to serve a Section 21 notice then you may need to take legal advice about returning the tenant’s deposit, or at least a proportion of it, before the notice can be served. The legal standing in this situation is still not clear as there’s no definitive court ruling, but usually returning the deposit should be sufficient.
Financial penalties that can be levied on a landlord
Despite the financial penalties that can be levied on a landlord for breaching the rules, a survey published earlier this year reveals the extent of many landlord’s and tenant’s ignorance over the rules.
Indeed, one question landlords and tenants were asked was about not complying with tenancy deposit law and just 2% could answer correctly that the financial penalty for not doing so is three times the amount plus the deposit.
That means an incredible 98% of landlords and tenants do not know the rights for tenants.
For those landlords in Scotland, there are similar rules defined under the Tenancy Deposit Schemes (Scotland) Regulations 2011.
Again, landlords will need to transfer their tenant’s deposit to a Government-approved deposit scheme such as SafetyDeposit Scotland within 30 days of the tenancy beginning. They must also give the tenant the information as to where it is being held.
Landlord fail to protect the deposit
Should the landlord fail to protect the deposit or hand over the key information, then under the regulations a tenant can apply for financial sanctions against their landlord with the First-tier Tribunal.
The resulting fine could be up to three times the deposit amount and they can also the order the transfer of the tenant’s deposit to a recognised tenancy deposit scheme.
Essentially, the landlord deposit rules are not complicated and they are there to protect both landlord and tenant and failing to adhere to the regulations, for whatever reason, can be an expensive mistake to make and it’s one landlords should strive to avoid.
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