Articles

Tenancy deposits

Since the Housing Act 2004, plans were raised to reinforce the protection of tenancy deposits for the majority of private sector tenancies. The aim of this proposal is firstly to avoid situations whereby unscrupulous landlords and letting agents wrongly cheat tenants out of their deposits and secondly to provide an unambiguous dispute resolution system through the courts.

Three types of tenancy deposit schemes are available to landlords and letting agents. The first two rely on an insurance provider to safeguard deposits and settle disputes. These are funded by the premiums paid by the landlord to the insurer. The other is a custodial scheme whereby the deposit monies will be placed in the scheme and the interest from these funds will finance it. In all cases the tenant will continue to pay the deposit directly to the landlord but a safeguard will now be in place.

These are the only three government-authorised schemes available. The enforcement of these new rules will mean that landlords will face substantial fines if they fail to register with one of these Tenancy Deposit Protection Schemes before the 6th April 2007 deadline. Not all landlords will need to adhere to this new system however. For company lets, properties where annual rent is over £25,000, student accommodation let directly by universities or colleges, and resident landlords the rules will not apply.

The initial reaction of landlords could be that of dismay at the idea of yet more Buy to Let regulation being enforced and fear of facing financial losses due to fines. However most landlords and letting agents already deal fairly with deposits and the requirements of Tenancy Deposit Protection Schemes will simply force the minority of bad landlords to act responsibly by safeguarding tenancy deposits. Fines should hence bring an end to underhand practices.

These schemes have received backing and support from major professional bodies in the private rented sector namely ARLA and RICS. They support the idea that a tenant will be able to legally request they get their deposit back when they are entitled to it, i.e. when they have adhered to the conditions of their contract and when they have maintained the condition of the property.

The outlook is optimistic: regulation of the Buy to Let industry is being persistently enhanced and at the same pace the industry is flourishing. People will now be encouraged to make clear agreements from the start and it will certainly make all too common tenant-landlord disputes easier to resolve due to the involvement of a third party.

Subsequently more regulation could therefore be a factor in Buy to Let growth. The stigma attached to renting and the ideas of slum landlords, disruptive tenants, students, employment instability are swiftly fading. Tighter regulation means greater professionalism which is encouraging for people who are involved in the industry. By portraying itself as a professional legalised and regulated industry it is attracting the sort of part-takers which will be able to propel the industry even farther forward ensuring continued expansion.

Provisional approval number MAB 2296.