29th July 2017
Tenancy deposit caps
Last month, landlords had another blow as government proposals, announced in the Queen’s speech, highlighted tenancy deposit caps to no more than one month’s rent in a bid to ‘make the rental market more affordable and competitive’. Landlords will be banned from more than one months’ rent under the proposed caps.
New rules will mean that landlords will be banned from charging any fees, a capped tenancy deposit and capped holding deposit. While we accept that there are a number of rogue landlords out there who abuse the current system, for the majority of tenants and landlords the system is working for them and introducing tenancy deposit caps simply does not make any sense.
There have been changes to legislation regarding deposits that have made a real difference to the system and are working for the benefit of both landlords and tenants. On the 6th April 2007, the Housing Act 2004 introduced the requirement for the deposit to be registered with a deposit scheme “for the purpose of safeguarding tenancy deposits paid in connection with shorthold tenancies.”
It appears the government’s initiative of introducing legislation to protect deposits and to help weed out rogue landlords withholding deposit monies has actually ‘paid off’ and we now have a fair system in place to arbitrate deposit disputes.
Why do landlords need more than one month’s rent?
- To protect the landlord in the case where the tenant does not pay the last month’s rent and has damaged the property. On occasions where in a six or twelve month tenancy the tenant does not pay the last month’s rent and insists that the landlord takes the deposit, if the deposit amount is only one month’s rent then the landlord could be adversely affected, as there is nothing left in the deposit to cover any damages. At least with a six week deposit, the tenant would be deterred from instructing the landlord to use the deposit as rent in the first place, but if they do, the landlord has two week’s deposit for damages.
- To protect the landlord when letting to ‘higher-risk’ tenants such as those with pets or tenants from overseas with no credit rating.
What happens in the case of a dispute, if there is not enough deposit secured?
Let’s say the rent was £1,000 and the tenancy deposit caps at £1,000. The tenant has left the
property with £1500 of rent and damages owing. The deposit has been secured with a deposit
protection scheme, and the landlord raises a dispute. In this situation the arbitrator finds in favour of the landlord and awards 100% of the deposit to the landlord. Great news! However, there is still £500 worth of damages to pay for – how does the landlord get this paid? The tenancy dispute
service will only handle the full amount of the deposit (in this case £1,000) – for any additional amounts outstanding, the landlord will be advised to “seek legal advice”. Meaning this landlord will then have to go through the courts.
Going through the courts to claim is a far more complex and time wasting process than using the original deposit protection system implemented by the government in the first place to help protect deposits. It seems to me that by introducing tenancy deposit caps will only increase the number of claims made through the courts and ultimately cost more to the Landlord.