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A Landlord's Guide: Protecting your Tenant's deposit

At the start of June some changes surrounding tenant’s deposits were introduced to the Private Rented Sector, imposing a limit on the amount of deposit a landlord can request from their tenants.  Deposits are now limited to five weeks’ rent on rents up to £50,000 a year, and if the annual rental payments exceed £50,000 then a landlord may ask for a deposit equal to six weeks’ rent.

This rule is for new tenancies taken out before 1st June 2019, and they also apply to tenancies which are renewed on a fixed term. This means when a fixed term tenancy ends, and both the tenant and landlord agree to a further fixed term tenancy, then any deposit held in excess of the new five- or six-weeks’ rent rule must be returned.

Definition: Fixed term tenancy

At the end of the initial rental period some tenancies roll into a periodic tenancy – that means that the wording in the tenancy agreement will say something similar to: this contract is for a minimum term of six [or 12] months and thereafter from month to month.

Meanwhile, in some circumstances, landlords may choose to renew the tenancy for a new fixed term, which would mean that a further fixed term six or 12 month tenancy is granted.

How to calculate the maximum deposit

In most cases, rents are charged on a ‘calendar month’ basis.  This makes it a little more complicated when it comes to calculating the maximum amount of deposit you can take.

Steps:

  1. Multiply the Calendar Monthly Rental by 12 – giving the annual rent
  2. Divide the total by 52 – giving a weekly rent
  3. If the total annual rent was above £50,000 then multiply the weekly figure by six; or if the total rent is below £50,000 then the weekly figure should be multiplied by five

Where deposits must be held

There are three deposit protection services available for landlords: Deposit Protection Service; My Deposits and Tenancy Deposit Scheme. 

A landlord must protect the tenants deposit within 30 days of receiving it from a tenant – and crucially, he or she must advise the tenant where it is being held.  If a landlord fails to do this, then a tenant can instigate legal proceedings against their landlord. In certain cases, failing to secure a deposit in one of the three schemes could prevent a landlord from evicting a tenant under the Section 21 notice process.

What about deposit replacement schemes

There are schemes available which do not require the tenant to pay an amount equivalent to five or six weeks’ rent before the tenancy starts. 

At haart we work with flatfair, which offers an alternative to taking a deposit from a tenant. 

Under this scheme, the tenant pays a one-off membership fee which is equal to just one week’s rent instead of paying a deposit.  As part of this agreement, the tenant will make a commitment to pay any lawful claims at the end of the tenancy. 

The tenant still has the same protection as they would if they had paid a deposit into a government approved scheme, whilst at the same time improving the way the payments and protections work. 

Meanwhile, the scheme could be even better for landlords, because the flatfair solution allows for protection equal to 12 weeks’ rent.

At the end of the tenancy

Where the deposit is held in a tenancy deposit scheme, they will act as an arbitrator and ascertain whether the landlord has the right to withhold any of the deposit.

One of the reasons why a landlord may want to retain some, or all of the deposit is if the tenant has damaged the property – and the landlord needs to, for example, replace a carpet before the property can be re-let.  Alternatively, if the tenant leaves the property with any arrears, then the deposit can also be used against those arrears.

When the tenant and landlord have agreed how much deposit is to be returned, then the landlord must do this within ten days.

Meanwhile, if the landlord and tenant are using the flatfair service, then the landlord can usually expect the process to be faster, as the scheme has been designed to reduce void periods, by speeding up any end of tenancy claims and releasing the funds to make any necessary repairs or replacements. 

If you have any questions about protecting your tenant’s deposit, or about flatfair please speak to your local haart branch.