Stephan Weber of Sykes Anderson LLP provides an overview of the new tenancy deposit schemes coming into force on 6 April 2007
Most residential tenancies in the UK are assured shorthold tenancies and generally the landlord or his agent will request a security deposit from the tenant.
With effect from 6 April 2007 landlords and letting agents entering into an assured shorthold tenancy (“AST”) and taking a deposit from a tenant will have to join one of the government approved tenancy deposit schemes. These are designed to better protect the rights of tenants in relation to the repayment of deposits.
Free to use alternative dispute resolution
An interesting aspect of the new regime is that the landlord or the agent and the tenant will have access to free to use alternative dispute resolution (“ADR”) services to help resolve disputes concerning the deposit. If the parties choose to pursue this route they will be bound by the decision reached with no recourse to the courts.
If either party does not wish to use ADR it still has the right to apply to the courts to settle any dispute but it is likely that in such cases the party taking this action will have to show good reason as to why the ADR on offer was not used, so as to avoid adverse cost consequences of bringing the claim through the courts.
The approved schemes
To date, the majority of landlords and letting agents appears to be still unaware of the new statutory requirements which are contained in Sections 212-215 and Schedule 10 to the Housing Act 2004.
The two types of approved schemes are:
- a cost free custodial scheme where the deposit will no longer be held by the landlord or the letting agent; and
- an insurance-based scheme where the deposit will be held by the landlord or the agent with insurance in place to protect the tenant against misuse of the deposit.
The custodial scheme
The landlord or his agent will pay the deposit into a designated account held by the scheme administrator. Upon termination of the AST, the landlord or the agent and the tenant will together notify the administrator as to how the deposit is to be distributed. If they cannot agree then ADR will be available.
There is no fee to join this scheme. It will be funded solely from the interest which accrues on the deposits in the scheme.
Computer Share Investor Services Plc (The Deposit Protection Service, http://www.depositprotection.com) has been appointed to manage this scheme, with the Chartered Institute of Arbitrators providing the ADR service.
The insurance-based scheme
Under this scheme the landlord or the letting agent will still hold the tenant’s deposit but will have to pay a fee to an insurance provider.
The government has appointed two scheme providers, Tenancy Deposit Solutions Limited (http://www.tds.gb.com), primarily aiming at letting agents, and The Dispute Service Limited (http://www.mydeposits.co.uk), primarily targeting landlords.
Tenancy Deposit Solutions Limited has already published a price list setting out the annual fees that will be charged to letting agents and ranging from £521 plus VAT for members of self-regulatory bodies to £1,609 plus VAT for unaffiliated agents.
Letting agents probably will or should subscribe to the insurance-based scheme. Non-professional landlords are likely to find the cost of this scheme outweighs the benefit of holding a deposit and would opt for the custodial scheme. A more probable outcome of the new regulations is to force non-professional landlords who have been letting their properties without using an agent to now do so.
What should landlords or letting agents do on receiving a deposit after 6 April 2007?
Landlords and letting agents will need to be signed up to one of the schemes before accepting any deposits but their obligation do not end there. They will also be required to provide tenants with the following information within 14 days of receiving the deposit:
- which tenancy deposit scheme applies to the deposit;
- how the landlord or the agent has complied with the relevant initial requirements; and
- how the statutory provisions operate in relation to the deposit.
If they fail to provide this information the courts have the power to impose a fine of up to three times the amount of the deposit.
The new schemes will make it easier for tenants to dispute a claim by the landlord or the agent to be entitled to retain part of the deposit. Accordingly, even more so than in the past landlords and letting agents should adequately record the state and condition of the property and any furnishings (using inventories and photographs where appropriate) before allowing tenants into occupation, as this is likely to assist in any potential disputes relating to the deposit.
Please note that this area of the law is a complex subject and you should not take or refrain from taking any step without full legal advice on your particular circumstances. The content of this article is of a general nature and no liability is accepted in connection with it or if any reliance is placed on it.
9 Devonshire Square, London EC2M 4YF Tel 020 3178 3770 Fax 020 3178 3771 DX 729 London/City E-mail: |
||
 |