Whether you are letting out your property directly or looking to enlist the help of a reputable letting agent to assist you through the process, deciding on what type of deposit you want for your property is an important step in the process. This is a short guide to help with the basic things you need to know about security deposits.
Why do I need a deposit?
A deposit will give you some reassurance and security in case your tenant causes any damage to the property or does not pay the rent. It can also help when it comes to dealing with any disputes or issues at the end of a tenancy.
Types of deposits
There are two types of deposits a landlord can use to secure their property when renting it out, custodial and insurance-based scheme.
- Custodial deposit Scheme
A custodial deposit scheme is a payment taken directly by either you or a letting agent on your behalf to cover any damages to the property and for rent arrears. If you decide to take a security deposit for an assured shorthold tenancy, then you or your letting agent must collect the deposit and the first rent payment before the tenant moves into your property.What do I do after collecting the deposit?
It’s essential to comply with all legislations to protect all deposits. Any security deposit paid to you or your agent on or after 1st April 2013 must be put into one of the government approved tenancy deposit protection scheme within 30 days of receiving it.
What if I don’t protect the Deposit?
Failure to register a security deposit could result in you being prosecuted for up to 3 times the amount of the original deposit. You may also be unable to claim any fees for rent arrears or damage to your property.
- Alternative Deposit Scheme
Over the years, quite a few alternatives to the traditional custodial deposit have been introduced to the private rental market. These deposit schemes are a non-refundable insurance policy that works by having tenants pay for an insurance deposit scheme. The tenant either pays a lump sum or a monthly amount on top of their rent to cover any damage to the property or rent arrears during the tenancy.
If a claim is made, and you are owed rent or have had your property damaged, then the insurance company will investigate your claim and make a pay-out to you if your claim is successful. They will then collect that payment back from the tenant.
Thinking of buying a property?
If you are a landlord looking to increase your portfolio, why not speak to our property investment expert Kate Hurles on 079 6012 0267 or email firstname.lastname@example.org