The Housing Act 2004 introduced new legislation that has a major impact in the private rented sector. Initially the Act drew attention with the introduction of Home Information Packs, ‘Sellers Packs’ as the media called them. Now it is the turn of the Tenancy Deposit Scheme, now called Tenancy Deposit Protection (TDP) and will apply to all new assured shorthold tenancies (AST’s) where a deposit is taken. It will not apply to assured or contractual tenancies (eg Company Lets).
Following pressure from the public and consumer groups, who were mainly concerned about tenants who had difficulty in recovering their deposits at the end of a tenancy, measures were introduced in to the Housing Act to prevent deposits being unfairly withheld by the landlord.
These measures commenced on 6 April 2007 from when all landlords and agents are required to join a statutory deposit scheme if they take deposits. This means that the deposits will be safeguarded and tenants will get all or part of their deposit back, if they have kept the property in good condition and are entitled to get the deposit back. TDP offers alternative ways of resolving disputes which aims to be faster and cheaper.
How does TDP work?
There are two types of schemes. Two insurance based schemes, each supported by Alternative Dispute Resolution (ADR) service and one custodial scheme with ADR.
Insurance based schemes basically work in the following way:
- The tenant pays the deposit to the landlord or agent.
- The landlord or agent retains the deposit and pays a premium to the insurer.
- Within 14 days of receipt of the deposit, the landlord or agent must give the tenant prescribed information about which scheme is being used and how it works.
- At the end of the tenancy, if the landlord and tenant agree how the deposit should be dealt with, the landlord or agent deals with the deposit as agreed.
- If there is a dispute, the landlord or agent must hand over the disputed amount of the deposit into the scheme for safekeeping until the dispute is resolved.
- If for any reason, the landlord fails to comply, the insured arrangements will ensure the return of the deposit to which the tenant is entitled.
The Custodial scheme basically works in the following way:
- The tenant pays the deposit to the landlord or agent.
- The landlord or agent pays the deposit into the scheme within 14 days.
- Within 14 days of receipt of the deposit, the landlord or agent must give the tenant prescribed information about which scheme is being used and how it works.
- At the end of the tenancy, if the landlord and tenant agree how the deposit should be dealt with, the landlord and tenant write to the scheme who will send back the deposit according to the agreement.
- If there is a dispute, the scheme will hold the amount in dispute until the dispute resolution service or courts decide what is fair.
The interest accrued by deposits in the scheme will be used to pay for the running of the scheme and any surplus will be used to offer interest to the tenant or landlord, based on the amount of the deposit that is refunded to each party.
What is ADR?
A key part of the Act and the Government’s objective is to provide both landlords and tenants with an independent and impartial solution to move out disputes. Currently, the only option for the parties is litigation which is time consuming and expensive and is not really an option for, say, a tenant who has a dispute on part of a deposit. In these cases, the court fees alone can be greater than the actual amount in dispute. Consumer groups have for a long time lobbied Government for this change on the basis that the current system is ‘unfair’.
When a dispute occurs, and if the landlord and tenant agree to use ADR, they will also agree to be bound by its decision. This means that disputes will only go to court when ADR is not used.
ADR is evidenced based and this has significant implications for the landlord. It is to be a free service and any cost incurred by the landlord or tenant in presenting a case is not recoverable. Similarly, the maximum monetary sum that can be recovered will not exceed the value of the deposit. However, in the insured schemes the tenant’s claim against the landlord does not have a monetary limit.
ADR is an ex-party service (unlike court, no one attends the hearing or dispute) and there will be no inspection. Since it is evidence based, it is clear that a party who cannot produce evidence has a poor chance of winning an argument. The minimum information will be the tenancy agreement, move in procedures, the Inventory and Schedule of Condition, move out procedures including move out Inventory and Schedule of Condition, photographs/video (where available) and any relevant correspondence/information, including appropriate mid-term visit reports, estimates/invoices for remedial work. Frankly, a landlord who cannot provide this documentation has little chance of succeeding.
What happens if there is non-compliance by a landlord?
It has always been possible to end a fixed term AST on two months’ notice effective at or after the expiration of the fixed term. If such a tenancy becomes periodic, it is also possible for a landlord to bring the tenancy to an end under notice (two months’ where it is a monthly periodic tenancy).
Under the new regulations, a landlord is unable to regain possession of the property (where it is let under an AST commencing after 6 April 2007) under a Section 21 notice if the deposit has not been safeguarded, or the prescribed information has not been given to the tenant within 14 days of the landlord receiving the deposit, in accordance with the regulations.
In short, this means that if a tenant refuses to vacate and the landlord has not complied with the regulations as to holding the deposit or providing the prescribed information in the required timescale, the court would not grant an order for possession under Section 21 of the Housing Act 1988.
In addition to the above, the tenant can also apply to the court for an order that the deposit is safeguarded or the prescribed information be given about the scheme in which the deposit is safeguarded. Where then court believes that the landlord has failed to comply with the requirements as to prescribed information or where the deposit is not held in a scheme, the court must either order the repayment of the deposit within 14 days, or order that the landlord pay the deposit in to the scheme administrator. The court must also order the landlord to pay to the tenant a ‘fine’ (but it is really compensation) of three times the deposit amount.
A tenant who vacates the property before discovering that their deposit has not been protected can make an application to the court at any time for a repayment order and the landlord would face the same sanctions as mentioned above.
So, which scheme will Whites Independent Lettings and Sales be using?
Having carefully considered the options available and the consequences of each scheme, we at Whites will be using the Custodial scheme from 6 April 2007. This scheme is run by Computershare Investors Services PLC who has called the scheme The Deposit Protection Service (DPS) and is funded entirely by the interest earned from deposits held in the scheme.
An independent ADR service, run by the Chartered Institute of Arbitrators, will help to resolve any disputes quickly and without the need for court action.
Landlords and agents will be able to register with DPS online, enabling them to provide tenancy details and make deposit payments, manage tenant and agent transfers and request repayments, 24 hours a day, 7 days a week and 365 days a year.
How can Whites help me?
Whites Independent Lettings will be more than happy to guide landlords through this new process and register deposits taken in the Custodial scheme even on Letting Only or Tenant Find only tenancies.
Please feel free to talk with us regarding your situation by telephone, email or even at our offices in West Street, Fareham.