Wednesday, 2 May 2007

Landlords may scrap deposit

Shropshire landlords may consider axing traditional tenant deposits rather than take part in a new protection scheme.

The new rules introduced earlier this month mean all deposits taken by landlords for assured shorthold tenancies in England and Wales must be protected.

Sarah Heath, who leads the Commercial Property team at Martin-Kaye Solicitors, in Telford, said the ruling would affect thousands of property owners.

“A national survey has shown that large numbers of tenants claim to have been cheated by landlords refusing to pay back their rent deposit – but now, under the new regime, landlords will have to choose either a custodial or an insured scheme, and provide their tenants with the contact details.”

Under the custodial scheme, the tenant pays a deposit to the landlord who has 14 days to send it to the scheme. At the end of the tenancy, the scheme returns the deposit.

Under the alternative insurances schemes, the tenant pays the deposit to the landlord, who retains the amount, but the landlord must also pay a premium to the insurer.

Both schemes feature alternative dispute procedures that can be used to help settle potential disputes.

“But many landlords are looking for alternative ways to approach the question of tenant deposits, rather than taking part in the schemes – simply not asking for one though means the landlord has no protection,” said Sarah

“You could consider taking post dated cheques, or charge higher rents and offer cash back at the end of the tenancy if there are no problems. Both these options though would require you to take part in the tenancy protection scheme.

“One solution could be to charge two months’ rent in advance – but although this may give the landlord some sense of comfort, the rent in advance could not be used to repair damage in the future.

“It’s clear that landlords need to be fully aware of the implications of the new rules, and ensure their procedures meet the guidelines. Taking care to draw up the right agreement in the first place will help prevent difficulties in the longer term.”