Damage deposit from DSS tenants?

by Readers Question

13:27 PM, 24th October 2016
About 2 years ago

Damage deposit from DSS tenants?

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Damage deposit from DSS tenants?

Getting a deposit from tenants with no assets has always been a problem, but for those of us who let to DSS tenants we are left open to the risk of criminal damage and rent arrears if the tenant turns out to be a rogue/bad tenant. For landlords who let to professional tenants, this is not such a problem as a deposit is taken and the landlord can recover debts via seizing goods (via bailiffs) or an attachment of earnings order. However, if the tenant is unemployed and has no assets, then such recovery is not possible, so I was wondering if there is some way of taking a deposit that is paid over time? – Let me explain:idea

Could a property be let to a DSS tenant on the basis (written into the AST) that any amount received from the tenant, via any source (Housing Benefit, DWP deduction, cash payment, third party, etc) would be held as a payment on account towards a deposit until it reaches £1000 at which point it would become a deposit and be paid into an approved deposit protection scheme? Such a deposit would be repayable to the tenant upon the ending of the tenancy less any amount for damage or rent arrears etc.

If this could be done, the tenant would have paid a refundable deposit which the landlord would have protected in the DPS (or similar scheme), but the tenant’s rent account would be showing as being in arrears (as the Housing Benefit received would have been used towards the deposit). The Housing Benefit Department always say (when a tenant spend the money instead of paying the rent), that it is the tenant’s choice how they use the HB money, so if they agree to use it as a deposit then that is their Right.

This would create a situation whereby if the tenant does not cause damage then the deposit will be refunded at the end of the tenancy. However, if the tenant does cause damage or needs to be evicted due to anti-social behaviour, there would be arrears on the account so they could be given 14 days notice under s8 ground 8, and could therefore be evicted quicker (i.e. quicker than using the s21 process), and the deposit could be used towards the cost of repairing any damage done.

Just wondering if this could be done, and if not, why not?

Robert



Comments

Neil Patterson

13:33 PM, 24th October 2016
About 2 years ago

Hi Robert,

I have read this a few times to try and get my head around it as in principle it seems like an idea.

However effectively the first £1000 of rent is refundable and the tenant is in arrears, but when they move out you are back to square one with how do you get the £1000 arrears repaid?

Also at what point does the money become the deposit eg what if only £500 is paid in total and no more payments are made at all and you rely on the £500 as a deposit. It is then effectively an unprotected deposit?

The Enforcer

14:44 PM, 24th October 2016
About 2 years ago

You can take a deposit in instalments BUT you must lodge the whole deposit with the appropriate Tenancy Deposit Scheme and then keep a separate account detailing the instalments paid. Don't know if your tenancy agreement should include a clause about the deposit being paid in instalments but if the agreement says a deposit of £500, then that is what must be protected even if you haven't received it all when the tenancy is signed.

Jonathan Clarke

15:07 PM, 24th October 2016
About 2 years ago

Yes its possible as anything can be written into a tenancy to suit prevailing circumstance but it causes a bit of a logistical headache. I sometimes do informal agreements and budget plans with them but one has to be careful not to fall foul of the rules for protecting deposits as has been highlighted

Have you tried perhaps asking the council for a deposit or / and rent in advance. My council often pays both from DHP funding and it works well . Just had £1450 put into my account before the tenancy agreement has even been signed up for one which starts on 27/10 . It gives confidence to me to still rent in certain circumstances to LHA tenants.

Different councils have different procedures though so yours may not entertain that idea. But with LHA tenants being evicted on a regular basis now as the rates have been frozen for 4 years more and more councils I believe will look at this carrot for landlords in order that we will still consider accepting LHA tenants

Robert Mellors

16:31 PM, 24th October 2016
About 2 years ago

Reply to the comment left by "Neil Patterson" at "24/10/2016 - 13:33":

Hi Neil

I guess I am thinking that if a tenant paid x amount, say for example £1000 (if rent is £500 pcm), from whatever source and over whatever period of time, this could by agreement be classed as a deposit/bond, but it would be possible to have some trigger event which causes it to become classed as a deposit, e.g. the total amount paid reaching £1000 or more. Thus, before it reaches the trigger amount it is not classed as a deposit (so no issue about protecting the deposit), and then when it reaches the trigger amount it becomes classed as a deposit and has to be transferred into a deposit protection scheme.

When the amount is transferred from the rent account to the deposit protection scheme (as has been agreed with the tenant), then the rent account will show as £1000 in arrears. The tenant then over pays the rent at an affordable rate so as to gradually reduce the rent arrears. When the rent arrears are cleared then the rent account is clear and the landlord has a £1000 deposit to offset against any damages, but of course the tenant will want the deposit back at the end of the tenancy so will be very careful to ensure that the property is not damaged and is left in a clean and tidy condition.

If the tenant is not willing to over pay so as to bring down the rent arrears, then the landlord is in a more advantageous position because the rent arrears will mean that he can obtain a mandatory possession order if he is not happy with the conduct of the tenant, and the deposit can be used to help offset any losses.

If the tenant is in receipt of Housing Benefit or Universal Credit, then the fact that there is rent arrears of £1000 (i.e. 2 months rent) means that the landlord can obtain direct payments, so the arrears should not increase further. Plus, the landlord would be entitled to a direct deduction from the tenant's JSA/ESA/UC to help pay off the rent arrears (okay, I know it is only a small amount, but over the lifetime of a tenancy then it could pay off some or all of the arrears) and this would mean that the tenant can expect some deposit back at the end of the tenancy if there is no damage. Thus, it would be a positive incentive for the tenant to take care of the property and end the tenancy correctly (not abandon it with damage and a house full of rubbish).

Having a deposit incentivises good behaviour and discourages damage or abandonment. Such a scheme would help to protect landlords from rogue tenants, and reward good tenants by giving them a sizeable deposit for their next home.

Neil Patterson

16:39 PM, 24th October 2016
About 2 years ago

Hi Robert,

It may be worth running this past one of the Deposit Protection Schemes for feedback. I would not like to put my or your neck on the block by guessing how this would be perceived.

Robert Mellors

18:37 PM, 24th October 2016
About 2 years ago

Reply to the comment left by "Neil Patterson" at "24/10/2016 - 16:39":

When I worked in a local authority housing department a few years ago, we had an issue in relation to offering tenancies to young people when they were under 18, because as a minor there is some confusion as to whether they can hold a tenancy in their own name (something to do with tenancies being a legal interest in land). However, they can have a contract for necessaries, or a tenancy can be held on trust for them. The Council could not hold the tenancy on trust for a minor because if eviction was necessary they would have to serve themselves with notice and take themselves to court etc. I came up with the idea that the minor could be given an occupancy agreement that would be a contract for necessaries (licence), which upon them reaching the age of 18 would automatically convert into a tenancy agreement (as reaching the age of 18 was the "trigger" event). I put this idea to the Head of Housing who asked me to get the legal team to check if this was possible because they had never heard of such an idea. The legal team confirmed that a contract or tenancy can come into effect upon a triggering event taking place (in this case the resident turning 18 years of age). This is what has given me the idea that a "trigger" event can alter a contract or bring one into being, and thus the money paid could in theory become a "deposit" upon it reaching a predetermined (pre-agreed) amount.

Couple this with the fact that the government insists that tenants are free to use their Housing Benefit for any purpose they wish (instead of paying the rent), then the tenant has a legal right to use any Housing Benefit received as a deposit instead of rent if they have agreed to do so.

Likewise, if a tenant authorises a landlord to treat the first £1000 (or whatever other amount) as a deposit, then the tenant is free to do this. It is the tenant's right to pay a deposit if they are agreeable to doing so.

The DPS are only concerned with the protection of deposits, I don't think they are in a position to determine when a rent payment could become a deposit payment through the action of some triggering event.

Robert Mellors

18:41 PM, 24th October 2016
About 2 years ago

Reply to the comment left by "Jonathan Clarke" at "24/10/2016 - 15:07":

Hi Jonathan

All the London boroughs are clammering to obtain housing in Milton Keynes and the home counties so that they can place their homeless household in to them, but unfortunately up North there is not so much competition and most local councils up here do not offer the same incentives.

Seething Landlord

18:53 PM, 24th October 2016
About 2 years ago

My understanding is that any money received as a deposit must be protected within 30 days and any artificial device designed to circumvent this rule is likely to fall foul of the rules and expose the landlord to a potential claim. The nature of a deposit requires that it is payable on or before the tenancy starts so any money received should be allocated first to the deposit and only when that has been paid in full can further payments be allocated to the rent account. Rent arrears are well understood but "deposit arrears" seems to be a contradiction in terms.

mydeposits

10:48 AM, 25th October 2016
About 2 years ago

Hi Robert,

You are correct by saying the deposit protection schemes (mydeposits included) are not in a position to determine how a deposit is paid.

Whilst we cannot comment on the legal side of things, I would be checking directly with your deposit protection scheme of choice as each scheme has its own terms and conditions;

As a scheme, we say to our members that if the deposit is paid in instalments then the full envisioned amount of the deposit as stated in the AST must be protected. If the landlord/agent does not receive subsequent instalments as expected then they must keep evidence in case there is a deposit dispute.

One idea we can recommend is lodging the money with a custodial scheme - this allows you to tell the scheme how much you are expecting to receive, and then each time the you are paid an instalment, you can send this to your custodial scheme of choice to top up the money they are holding.

We're keen to hear if you take your idea further, so do keep us updated!

Romain Garcin

12:55 PM, 25th October 2016
About 2 years ago

The legal position is that only what is received must be protected.

There is no obligation for a landlord to protect the whole amount agreed if it has not been received, and in fact it would not be in the landlord's interest at all to do that.

That said, accepting payment of the deposit in instalments completely defeats the purpose of a deposit and should therefore not be considered.

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