As recently quoted in the Daily Mail, new reports estimate that 284,000 buy-to-let landlords in England & Wales have not protected their tenant’s deposit with a government-backed schemes, which has been a legal obligation since 6th of April 2007.
Research suggests that currently up to £514 million’s worth of deposit money is not officially protected, putting landlords at major risk of fines up to three times the deposit amount. This means an unprotected deposit of £1,500 could result in a fine of up to £4,500.
In addition to the fines, landlords who are not fully compliant can also lose the right to use a Section 21 notice when regaining possession of their property.
One in Six
Yet despite the crack down on unprotected deposits and the risk of large fines, around one in six landlords knowingly or ignorantly leave their deposits, their tenants, and themselves unprotected.
This means that nearly 15% of landlords are using the average protected deposit of £1,040 to earn £8.5million a year on unprotected money via interest.
“Doing the right thing”
Financial experts have contributed to this important landlord issue. Hannah Mundrell, the Chief Editor of money.co.uk, explains the current theme enveloping deposit protection brilliantly.
“While many landlords are doing the right thing and protecting deposits in one of the official government backed schemes, a worrying amount of money is falling through the cracks and far too many tenants are being left vulnerable.”
“It’s not just renters that stand to benefit from deposits being protected; after all landlords need a safeguard against renters that misbehave too.”
Reasons for optimism
Hannah is of course right, most landlords are fulfilling their duties correctly, which has in turn seen the number of protected deposits has risen from 1.7 million in 2009 to 3.1 million today.
Cebr (Centre for Economics & Business Research) calculated that the deposit protection compliance rate in 2015 was 85.5%. This represents a huge leap from the figure published a year after the law was implemented, which was just 35.2% in 2008.
Richard Lambert, CEO of the National Landlords Association, commented on the positives to take from landlords, on the whole, acting within the law:
“It’s a positive sign that the majority of landlords are properly protecting their tenants’ deposits. We estimate 10% of landlords choose not to take a deposit from their tenant – and therefore don’t need to comply with the law.
However, this still leaves a small, but significant proportion of landlords who may still be breaking the law by not protecting the deposit. Many may not even be aware that they are legally obliged to do so. Ignorance is no excuse and the courts take a very dim view of those who use this as a defence.”
It is true that if you do not ask for a deposit from your tenant, then there is no reason to comply with a tenancy deposit scheme. However, if you do have a deposit from a tenant, it is very important to keep informed on the latest legal guidelines.
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No risks, yet all the rewards
It’s easy to comply with mydeposits. By joining and protecting the deposit with our insurance-based scheme landlords and letting agents can keep hold of the deposit for the duration of the tenancy. This involves paying a small fee to have your tenant’s deposit fully protected and retained in your own bank account.
At the end of the tenancy, you can return the deposit less any agreed deductions for things like cleaning or missing items where the terms of the tenancy agreement have not been met.
If you and your tenant cannot agree on the proposed deductions then the disputed amount will need to be passed over to the scheme for safekeeping until the dispute is resolved.
If you’d like to know more about our award-winning dispute resolution service, take a look at our dispute advice page.
As we’ve established all of the real risks associated with unprotected deposits, it makes sense to confirm just how easy, cost-effective and hassle-free it is register the deposit.
We also have a new scheme available in April, and the best part is, it’s completely free.
Our custodial-based scheme will work differently because instead of keeping your tenant’s deposit in your own bank account, we will hold it safely on the behalf of yourself and your tenant.
At the end of the tenancy, provided you and your tenant agree on the amount to be released to both parties we will release the money accordingly.
If there is a dispute that needs to be resolved, we will keep hold of the disputed amount and offer mediation until our evidence-based dispute resolution service decide on a fair outcome.
Register your interest in the forthcoming custodial scheme by inputting your details here.
Be protected, stay protected
To summarize the importance of legal compliance and risk aversion, my|deposits CEO Eddie Hooker had this to say:
“The fines for non-compliance are substantial, so landlords and agents must ensure they both protect the deposit and pass the information to their tenants in order to fully comply with the law.”
Make sure you’re not in the minority who ignore their duties or leave it too late to get their deposit protected.
If you have any other questions about how we can help with deposit protection, deposit dispute resolution or how our schemes work, get in touch today to make an important step forward in landlord life.