Deposit Bond

Do not take deposits

The majority of landlords in the UK rarely encounter the need to hold onto some or all of the deposit, which poses the question “do you really need to take deposits?”

If you wish to avoid the cost and beuraucracy of entering any of the schemes, there are some suggestions on what can be done.

Rent In Advance

When the tenancy deposit scheme was introduced. Communities and Local Government’s “Frequently Asked Questions” indicate that advance payment of rent is outside the statutory tenancy deposit scheme. An advance payment of rent must be properly described as such and documented.

However, it has now come to our attention that the Courts are beginning to carefully scrutinise advance payments of rent and that judges may treat it as a disguised deposit which ought to be dealt with under one of the statutory tenancy deposit schemes. This could mean that you could have to pay three times the amount penalty if you have taken advance rent, and not protected it under one of the statutory schemes should the Court decide to treat it is a deposit. Whilst we believe that an advance payment of rent is not a tenancy deposit, judges are appearing to regard it as an attempt to avoid the legislation. As a result, if you apply for possession using Section 21 against an assured shorthold tenant, at the least you could have to attend Court to explain the situation and persuade the judge that the money you received genuinely was an advance payment of rent and not a tenancy deposit. If you bring action based on rent arrears you could face a claim by the tenant that the advance payment of rent was not that at all but was a deposit. This could mean that the tenant could then try to counterclaim for the penalty to avoid rent arrears. Either way, you could face delay and anxiety in obtaining possession.

It may well be the case in time that the position is clarified in favour of the landlord. We are however, issuing a strong warning to landlords about the problems which could be encountered.

Our advice therefore is not to take an advance payment of rent from the tenant because of the potential uncertainty and problems you might face.

Another alternative to look at is taking an administration fee. This is a non returnable charge which you take for preparing the tenancy, signing the tenant up and initial administration. You could simply decide not to take a deposit. Alternatively, we can take a tenancy deposit but you must then register it under one of the schemes.

If you have already taken advance payment of rent you should seriously consider whether to protect it as a deposit under one of the Statutory Schemes. If you do decide to take this step you will need to notify the tenant(s) and give the prescribed information as well.

Guarantors

Use a guarantor who is a home owner and would provide assurance that rent/damage will be paid for before the end of the tenancy – taking a guarantee is outside the tenancy deposit scheme.