Whist it is estimated that around 150,000 landlords have made the move to register with a scheme, it is clear that a large majority have yet to do so. Given the new legislation has been in place for almost five months, the number of landlords who have yet to register with a scheme could be a cause for concern. While landlords with tenancies that started before the scheme was launched on 6 April do not need to protect deposits until a new tenancy is created, there may be other, more worrying, reasons for the relatively slow take-up.
Tenancy deposit protection applies to deposits taken under Assured Short-hold Tenancy Agreements (ASTs) in England and Wales. The NLA believes that some landlords previously using ASTs could now be choosing to use alternative tenancy agreements, such as assured tenancies, in a move to avoid deposit protection.
David Salusbury, chairman of the NLA, said: “This could prove to be a risky strategy for landlords. Assured tenancies, as distinct from assured short-hold tenancies, make it very difficult for landlords needing to recover possession of their property. For most landlords, avoiding the requirement to protect a deposit at the expense of compromising their ability to get the property back makes little business sense.”
There is also anecdotal evidence that some landlords who formerly took deposits are now choosing not to, thereby exposing themselves to additional risk in the event their tenants damage the property or default on the rent.
The NLA regards the taking of a deposit from the tenant as best practice. It shows good faith on the part of the tenant and is an important safeguard available to landlords. Not only does it encourage tenants to respect and look after the property, it gives landlords some recourse if they do not. Dispensing with a deposit, except in exceptional circumstances where the tenant has a long term track record with the landlord, is a strategy which the NLA would not advise landlords to follow. That said landlords must realise that a deposit is the tenant’s money and must be properly and fairly accounted for at the end of the tenancy.
There may be a minority of rogue operators who are deliberately flouting the law and others who remain in ignorance of the law. By taking a deposit and ignoring the legal requirement to protect it with a government-approved scheme, such as Tenancy Deposit Solutions Limited, landlords are committing an offence – whether they are aware of it or not.
Salusbury said: “The penalties for non-compliance with tenancy deposit protection are severe – a court can order the landlord to repay the deposit plus a penalty of three times the amount of the deposit. On top of that, the landlord will also be unable to apply to the courts for fast- track possession under Section 21of the 1988 Housing Act. Dispensing with the AST, failing to take a deposit or, even worse, taking a deposit but not protecting it – these are all actions which could leave landlords seriously out of pocket, not to mention they could be breaking the law. It’s vital that those landlords who are not using a government-approved tenancy deposit protection scheme realise it is in their interest to do so if they continue taking deposits on an AST.”
