Recent changes brought about by the Housing Act 2004 have resulted in landlords no longer being able to hold deposits paid by their tenants. As of October 1st 2006, every landlord must now join a tenancy deposit scheme in order to avoid the risk of receiving a fine of up to three times the deposit, or even being barred from their property, if they accept a deposit from a tenant.

There are two forms of scheme open to property owners, namely an insured scheme and a custodial scheme.

Under an insured scheme, landlords can continue to hold the tenant’s deposit unless a dispute arises with that tenant. At this point the landlord must pass the full deposit to the scheme administrator who will hold it pending adjudication of the case.

The custodial scheme differs in the sense that a scheme administrator, rather than the landlord, will hold the deposit until the end of the tenancy. This will effectively provide security for both parties: tenants will have their full deposit returned to them if they comply with the requirements of the Lease whilst the landlord is given an opportunity to apply to retain the deposit if the tenant leaves the premises in an unfit state or defaults on his last month’s rent.

The Office of the Deputy Prime Minister asserts that the new rules will virtually eliminate the risk of an unreasonable retention of a tenant’s deposit. Conversely, landlords will be able to rest comfortable in the knowledge that, under the custodial scheme, they will relinquish the responsibility for the tenant’s deposit, thus reducing the practical burden of letting property.

The advice is simple: Landlords – ensure that you are registered with a deposit scheme if you are accepting deposits from tenants. Tenants – make sure that you landlord is operating one of the above schemes before entering into a tenancy agreement after that date.

DID YOU KNOW?

Our Property Department is able to assist Landlords who need to register with either type of deposit scheme for a small fee. For more information, contact Debbie O’Shea on 01539 725582