Is the no-deposit scheme correct?

by Readers Question

11:33 AM, 3rd March 2020
About 7 months ago

Is the no-deposit scheme correct?

Make Text Bigger
Is the no-deposit scheme correct?

I would appreciate your views on the following. I had a new tenant sign up for a 12 month (fixed-term) AST for a room at £550 pcm.

I gave the tenant the option of providing a deposit equal to 5 months’ rent or for him to set up an arrangement with a no-deposit scheme equal to the value of 8 weeks rent. The tenant chose the latter.

Having paid one months’ rent in advance the tenancy commenced on 7th Oct, when the time came for the second months’ rent (7th Nov) it was not received, however, the third month (7th Dec) was received via a standing order that had now been set up. The second month (7th Nov) remained in arrears. When the time for the fourth month came (7th Jan), it was not received. The tenant had cancelled the standing order.

On 9th Jan a section 8 grounds 8, 10 & 11 was served giving the tenant notice with court action not commencing before 24th Jan. The tenant subsequently left the property on 25th Jan after a check-out and signing a surrender of tenancy and agreeing to rent arrears valued at £1,100.

A claim was submitted to the no-deposit scheme and my expectation was to receive payment to the value of the 8 weeks rent (£1,015.38) covered. However, the no-deposit scheme has declared that I am only entitled to payment up to the date the tenant left quote; “the tenant vacated and surrendered the tenancy upon the expiry of the Section 8 notice which means legally his liability ended.

Rent owed is £893.56 which is one full month and 19 days at £18.08 per day, 19 x 18.08 = £343.56 + £550 = £853.56” .

Now my thinking is that as the tenant was still in the fixed-term he owes me for the maximum 8 weeks covered. The fact that a section 8 was issued was due to his failure to pay the rent. Also, he was not evicted, the tenant decided to leave before any section 8 court action, as such this was his choice.

Now I know this is just small numbers but it’s the principle applied by the no-deposit scheme that I am questioning here – your thoughts?

Rob


Share this article

Twitter Facebook LinkedIn

Comments

SimonR

17:09 PM, 3rd March 2020
About 7 months ago

I'm assuming you meant 5 weeks as a deposit and not 5 months, the deposit scheme are wrong, you submitted a section 8 based on the tenant owing two months rent so they owe you 2 months. The problem is these schemes are unregulated so you are at their mercy. What does it say in their T & Cs

Rob Crawford

17:51 PM, 3rd March 2020
About 7 months ago

Reply to the comment left by SimonR at 03/03/2020 - 17:09
Yes, 5 weeks! T&C's can't possibly cover each potential claim scenario, so not sure what you are expecting here?

Seething Landlord

0:46 AM, 4th March 2020
About 7 months ago

My take on this is that the "agreed arrears" of £1100 would only be valid if the tenancy had continued to 6th February. It was actually terminated by mutual agreement on 25th January when the tenant signed a deed of surrender so I do not see how you can claim that rent is due for any period beyond that date. The S8 is headed "Notice seeking possession " and a reasonable interpretation is that the landlord wishes to end the tenancy and intends to seek a court order if possession has not been given by the specified date. Liability to pay rent for the remainder of the fixed period would only arise if it was the tenant who was seeking to end the tenancy so I think the insurers are correct.

Had proceedings been issued on 25th January you would not have obtained an order for many weeks and if the tenant had then stayed put until the bailiffs turned up, the arrears and other costs would have been way in excess of £1100 by the time that you gained possession, so the surrender was the pragmatic solution, benefiting both parties.

David Lawrenson

10:20 AM, 5th March 2020
About 7 months ago

Mmm, I remain unconvinced about these so called "zero deposit schemes". And maybe this case only strengthens my reservations.
When we assess tenants, we do reference checks, credit checks and check tenants’ bank statements. We want to know that the tenants can afford our rents comfortably. If a tenant could not afford to pay a five week deposit because they were waiting for the deposit to come back from their last tenancy, that would indicate to me that they must be only a month or so away from not being able to pay the rent.
Not the sort of tenant I want! And that is the main reason why I won’t be offering “zero deposit tenancies” any time soon, but I can see they have a place at the low rent / low income end of the PRS.
I'm not sure they are all that great for tenants too.
Worth saying the government is looking at bringing in some tenancy deposit passporting thing, but I cannot see how this could work with any great fluidity.
I wrote a longer piece about these zero deposit schemes here..
https://www.lettingfocus.com/blogs/2019/09/zero-or-nil-tenancy-deposit-schemes/
Hope the situation is soon resolved in your favour.
David Lawrenson
http://www.LettingFocus.com
Private Landlord Advice

David Lawrenson

11:05 AM, 5th March 2020
About 7 months ago

On the matter in question, because the tenancy was surrendered before fixed term ended, I think you are on a sticky wicket here because as part of the surrender it might be implied that you had accepted the arrears and actually wrote them off.

Maybe a legal opinion is required here.

As I say, it's why I don't like these No Deposit Schemes.

David Lawrenson
http://www.LettingFocus.com

Seething Landlord

11:46 AM, 5th March 2020
About 7 months ago

Another way of looking at this is that the amount offered by the insurers is actually more than would have been available if a 5-week deposit had been taken instead.

The insurers will have to justify their expenditure to the tenant when they try to recover their outlay from him so it is not surprising that they are not prepared to pay more than what they consider to be the tenant's legal liability. They seem to have approached the claim in exactly the same way as would have been expected from an adjudicator under one of the deposit protection schemes.

The tenant has already paid the premium for the insurance cover and will end up in debt to the insurers, whereas the landlord will recover his full legal entitlement without the hassle of chasing the tenant for anything in excess of the maximum 5 weeks deposit so it is not difficult to work out who is emerging as the loser.


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Winter Economy Plan leaves landlords out in the cold

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More