The Devil is in the Detail

The Devil is in the Detail

11:59 AM, 5th December 2011, About 11 years ago 107

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The Localism Act 2011 is another heavy piece of legislation and you might be forgiven for missing a very important detail. It has been overlooked in several articles that I have read this week, but the courts will not forgive you so you’d better read on.

In the Housing Act 2004 it became unlawful to take a deposit from a tenant and not “protect” it through one of the 3 schemes that have Government contracts. The Housing Act 2004 included Tenants Deposit Protection (TDP) because it was perceived that landlords were not treating tenants fairly when it came to stoppages at the end of the tenancy and therefore the tenant needed to be given the opportunity to have independent arbitration in the case of a dispute. The arbitration must be paid for and the landlord was given two options.

    1. Put the deposit into a custodial scheme where it is held, at no cost to the landlord or the tenant, until it is returned the end of the tenancy. The interest made on the monies lodged pays for arbitration

OR

  1. Pay an insurance premium of £30 and hold the deposit yourself. The insurer will pay for the arbitration

I won’t go into the details of Tenancy Deposit Protection (TDP) but you can find them all here.

This had not been updated at the time of writing and the following statement at the top of that page is incorrect.

“There are currently no known outstanding effects for the Housing Act 2004, Section 212.”

The 2011 Localism Act, including changes made to this section of the Housing Act, can be found here.

These are the important changes made to the TDP legislation in this Act

  1. We now have 30 days in which to protect the deposit from the date on which it is paid to us by the tenant – this is increased from 14 days
  2. The legal penalties for not protecting a tenant’s deposit are now on a sliding scale, the minimum of which is the return of the full deposit (regardless of what a Tenant may owe you) up to a total of four times that amount. The court has the discretion to decide.
  3. The tenant, and any other person who has provided the deposit, must be given the prescribed information and copy of the Deposit Protection Certificate within 30 days of paying the deposit – up from 14 days
  4. If the deposit has not been protected within the first 30 days subsequent protection will not be legally compliant and a tenant may still take an action in the County Court, even after the tenancy has ended. The penalty may depend upon how long after the 30 days the deposit was protected.

The devil that is hidden in the detail is this

If you do not protect a tenant’s deposit within 30 days of taking it you will not be able to use Section 21 of the Housing Act 1988 to regain possession of your property at any time during the tenancy.

So say you want to remove a tenant from your property because you want to sell it (or for many other reasons) but the tenant is meeting all the terms of the tenancy and does not want to leave.

You did not protected the deposit within 30 days of taking it, so therefore-

You are stuffed

I have a couple of other warnings for you but I will let you digest that first.

*** Updated 7th December 2011 ***

This is the Link to the Localism Act Section 184 which relates to tenancy deposit protection

http://www.legislation.gov.uk/ukpga/2011/20/section/184/enacted

The details that I refer to are in

Sections 10, 11, 12, 13 and 2A

Given this situation what are the landlords option?

1. Do not take a deposit 

2. If you have missed the 30 day deadline you could give 100% of the deposit back to the tenant during the tenancy and this will enable you to serve a Section 21 notice if the tenant does not want to leave

3. You could try negociating with the tenant about any rent arrears, losses or damages and agree the amount to be stopped from their deposit and return the balance to them - during the tenancy - and then serve a Section 21 to remove them

4. You could try regaining possession using a Section 8 - with grounds - and hope that the court is not interested in the fact that you have not protected the tenants deposit within 30 days if this is used as part of a defence

YOU MIGHT TRY THIS 
Take a deposit and protect it under one of the three schemes within 30 days & give the prescribed information to the tenant within 30 days
 The date that these changes will take effect has not yet been announced but it looks likely to be April 2012


Comments

by Mary Latham

18:34 PM, 7th December 2011, About 11 years ago

I have submitted an update to the original post to answer some of your questions

by Alun Thomas

19:45 PM, 7th December 2011, About 11 years ago

Good Evening Mary

I have just read your article. Thanks for this information. However I have a scenario for you. It goes like this and is also a warning to all other landlords.
A local letting agent that had all the (National Letting Association memberships) rented two houses for me about 2 years ago. They offered to deal with the deposits from the new tenants and we agreed that it would be transferred into the DPS system. When the Letting paperwork came through for signature etc reference was made on that paperwork regarding the fact that the deposit was lodged with DPS and a DPS Ref No was noted.! I took, from this fact that all was well as it had saved me having to handle the deposit myself. I allowed them to do the leg work for me so to speak.
Within a year of renting the letting agency went bust and none of the management could be traced. I did not think that would have affected me but I was contacted by the receivers and told that the deposit had never been transferred to DPS and the company had banked the money themselves and by now had “legged” it. Thank goodness for ARLA and after some 14 months I have just received a cheque covering my tenants deposits.
Now a question. What should I do with this deposit. It is over 14 days, since commencement of the tenancy !! I would be grateful for any advice. Thank you

by Mary Latham

22:47 PM, 7th December 2011, About 11 years ago

Good evening Alun, I'm really sorry to hear about that experience and actually quite shocked that it took ARLA 14 months to pay you when the Agent was surely covered by their insurance scheme?

Put the deposit into a protection scheme and give the prescribed information including the protection certificate to the tenants with a covering letter saying how sorry you are - I assume that know about the Agent? At this moment you dont need to worry too much because of recent case law. It is only when the changes take effect that it would be a problem to be in this situation.

by Mark Reynolds

23:25 PM, 7th December 2011, About 11 years ago

Hi Alun, I too am sorry to hear of your position - I hope what happens from now on is what you expected from your investment. Are you able to tell us the reason for the delay, if there is a reason, or do you know if this is the normal time delay experienced with ARLA when situations like this arise?

by Mark Reynolds

0:51 AM, 8th December 2011, About 11 years ago

I would also be interested in how any of the landlords on here perceive the two prominent bodies in the lettings market today - ARLA and SAFEAGENT?

Less than 1 minute of your time so please check your answers 🙂

by Alun Thomas

16:12 PM, 8th December 2011, About 11 years ago

Thanks Mary. I will do that this evening
Re time delay Mark. I apologise it was nearly 13 months not 14 as previously stated. I believe the delay was due to the number of claims that they had to handle not only from this agent but from other agents as well who had gone into liquidation!! Mind you I had to chase them every few months for updates!!

by Mary Latham

17:23 PM, 8th December 2011, About 11 years ago

Alun, I am amazed that an organisation the size of ARLA could delay payment for this staggering amount of time - regardless of how many cases they were dealing with they surely have published timescales to work to?

I think that you have been very patient indeed I would not have waited over a year for an insurance company to settle a claim

by

4:38 AM, 9th December 2011, About 11 years ago

What I require for my new tenants is 1 month rent in advance and 2 months rent as a deposit.
Clearly this is a struggle for tenants.
So what I do is take the 2 months rent as a deposit.
I then issue an appendix letter to the AST which allows the tenant to pay the 1st months rent over a following months; generally 2 months in addition to the normal monthly rent in advance.
The letter states that providing they keep to the payment schedule they wil,n ot be considered to be in breach of their tenancy agreement as effectively they are 1 month in arrears until they have paid over the allotted months.
I have done this now with 2 tenants without any issues.
I protect the deposit within the 14 day period soon to be made even easier as indicated in other posts by 30 days.
How landlords are unaware of the deposits rules would lead me to suggest they are thick.
Only an idiot would be unaware of the deposit regulations.
These are probably the same idiots who know nothing about gas safe checks; CP12, hidden gas flue remedial works by 1.1.2013
;All rental properties having to met minimum Epc rating of E by 2018.
Requirement to carry out such energy saving measures by 2016 if the tenant requests them which cannot be reasonably refused.
There is sufficient amount of information out there for any LL to locate to tell him how to run his properties.
If he doesn't want to then using a LA at vast expense is the only choice!!
Quite a lot of this information is on this site along with very helpful and knowlegable posts by frequent guest writers.
LL have no excuse.
There is a often used phrase' ignorance of the law is no defence!!!'
This applies to LL aswell incase they didn't realise!?
Personally I only use the mydeposits scheme which I know I have to pay an insurance premium; but I would rather have the monies in my bank acount earning me interest and assisting my cashflow than being with a LA.
Plus it doesn't matter what scheme is used; if the LA agent runs off with all the deposit monies; which has happened, the ULTIMATE redress for the tenant is against the LL..
Better therefore for the LL to hold the monies , then there can be no issues about where the monies are!?

by Mary Latham

16:57 PM, 9th December 2011, About 11 years ago

Look out for my new article Further Warnings to Landlords about Tenants Deposit Protection

by Mary Latham

17:24 PM, 9th December 2011, About 11 years ago

Paul whilst I agree with you fundementally and of course you are right legally but I meet thousands of landlords every year, many have huge portfolio, and I am sorry to say some would have no idea at all what you are talking about.

In the early days I felt quite cross when I met these landlords but over time I have come to realise that many people think "being a landlord is easy, you just buy a property and let it" as we know there is a lot more to it than that. Many of the landlords I meet do not use computers and therefore they are limited in their sources of information and this is why I spend so much time talking to groups of landlords at different events.

I am still surprised at how many landlords are unaware of the laws and regulation related to our business and I have made it my business - quite literally - to get landlords up to speed. My one day seminars are usually sold out and at the ends of the one day the landlords in the room cannot fail to be aware of their legal responsiblities - and how to cover their backs.
To make the point that I am not "preying" on these landlords the seminar costs £150 for 7 hours including lunch and beverages throughout the day.


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