Landlords to lose control of tenancy deposits

Landlords are being warned that they will lose control of the deposits paid by their tenants when new regulations are introduced later this year.

Instead of retaining the money, property owners will have to hand it over for safe keeping to an independent company appointed by the government or enter into an insurance scheme.

Failure to comply with the new regulations within 14 days of a deposit being handed over could lead to hefty fines.

Emma Dancer, residential property specialist at Andersons Solicitors in Nottingham, says the tenancy deposit scheme was introduced almost as an afterthought in the Housing Act 2004 which is now coming into effect.

“It seems to have sneaked in unannounced but it’s going to have a serious impact because it marks a major shift in the balance of power with everything now being skewed in favour of the tenant.”

The change has come about following research showing that many tenants claim that landlords withhold too much of the deposit when the tenancy agreement ends.

Miss Dancer says the government has reacted by clamping down on all landlords.

The new regulations are due to come into force in October 1 and will apply to properties rented out after that date.

“Under the new scheme, when a tenant pays a deposit the landlord will have 14 days to hand it over to a government appointed private company. Alternatively, he could keep the money but would then have to register with an insurance scheme administrator who could reimburse the tenant in the event of a dispute.

“If he fails to enter into one of these arrangements then the tenant can apply for a county court order forcing him to do so. In these circumstances, the court must also order the landlord to pay the tenant an amount equal to three times the amount of the deposit. The landlord won’t be able to evict a tenant until such a dispute is resolved.

“It is quite draconian. Landlords could effectively be fined several thousand pounds for failing to comply within 14 days.

Miss Dancer said that the law doesn’t offer any comfort to landlords if the tenant withholds the final month’s rent when he leaves.

“The landlord won’t be able to take the money he’s owed from the deposit. He’ll have to go to court to recover it. And if the tenant and the landlord disagree about how much of the deposit should be retained against damage caused to the property, the case will have to go to arbitration involving further time and costs.

“As if this isn’t enough, the independent company that runs the scheme will be able to siphon off some of the interest earned by the deposit money.”

The government insists the changes are necessary to protect tenants from landlords who don’t repay deposits. But Miss Dancer said the system seemed to be punishing the responsible majority for the actions of a tiny rogue element.

“More than ever it’s vital that landlords keep up to date with changing legislation and make sure they comply with the new regulations. Failure to do so could result in fines and court costs running into several thousand pounds.”

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