Landlord! Beware heavy fines from red tape schemes.
By Damian Clarkson 9th May 2007
Many landlords are completely unaware of new tenancy protection laws that could
see them fined thousands of pounds.
The new rules - introduced last month - are designed to better protect tenants by
ensuring their deposit is either insurance protected or held by a third party.
To achieve this, any landlord taking on new tenants must join a tenancy deposit
protection scheme, which will also act as an intermediary when the tenancy agreement
ends and it comes round to returning the deposit or paying off damages to the house.
Disputes therein will be dealt with by The Dispute Service, which the government
claims will be faster and cheaper than going to small claims court.
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Act now or be fined
Any landlord not signed up to one of these deposit schemes could be sued by tenants
for up to three times the value of their deposit. To make things worse for landlords,
these schemes are not free.
Landlords do however have a 14-day grace period between accepting their tenant’s
deposit and registering with a scheme. Landlords who don’t take deposits are not
required to sign up.
Due to a lot of last minute fiddling with the rules by the government, many private
landlords are either confused or completely oblivious to the new laws, letting agencies
have claimed.
So let’s take a look at what landlords need to know, as well as some other options
available to them if they simply don’t want to be forced into a scheme.
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Choosing a deposit scheme
There are three different schemes that landlords can join – either privately or
through a letting agent.
The first, and simplest, is a custodial scheme that is likely to prove the most
popular with private landlords because it’s the only free option.
The catch, as the name suggests, is that the deposit will be put in their custody,
and the interest earned will serve as the fee.
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The insurance schemes cost money
If that doesn’t appeal, landlords can opt for an insurance-backed scheme of which
there are two. Both are expected to prove more popular with letting agents due to
high fees and the fact that members of the Association of Residential Letting Agents
(ARLA) get discounts.
The Tenancy Deposit Scheme has yearly fees ranging from £521 for ARLA members, to
a whopping £1,609 for unaffiliated agents.
The Tenancy Deposit Solutions works like a PAYG system, with a £59 charge up front
and £30 fees for each additional deposit registered. There is also an annual renewal
fee of £14.70.
Remember, the cost of insuring the deposit cannot be passed on to the tenant. Click
here for more information on the tenancy deposit scheme.
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Still not convinced? There are other options
The government has anticipated landlords would be disgruntled by the new rules –
and rightly so – but simply expects them to shut their mouth and get in line.
If joining a scheme makes no financial sense to you, there are a number of ways
of protecting your property against damage by a tenant without taking and holding
a damage deposit.
First of all, you could insure your property against damage. According to the National
Federation of Residential Landlords (NFRL), insurance brokers ABIB Ltd will cover
damage by tenants of up to £1,000 per tenancy for £26.25.
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But be warned, this deal comes riddled with terms and conditions. To name but a
few, landlords must be members or affiliated to NFRL - otherwise the cost is £42.00
– and must have buildings or contents insurance with Norwich Union through ABIB
Ltd.
Alternately, the NFRL suggests you insist on a guarantor.
“Guarantors have been traditionally used for student tenants, but more and more
of our members are reporting that this is a good way to protect rental income and
property. It is best practice to check that the guarantor is a homeowner by asking
for mortgage documents or checking with Land Registry.”
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Let your property as an assured tenancy
You might also consider charging rent two months in advance, or taking out rental
guarantee insurance and charging the cost to your tenant as an administration fee.
Finally, you could let your property as an assured rather than assured shorthold
tenancy, though this would only be feasible for landlords with a single property
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This is because an assured shorthold tenancy allows you to use the ’no fault’ notice
only ground for possession to evict the tenant once the fixed term has come to an
end, explains solicitor Tessa Shepperson at legal information site landlordlaw.co.uk.
“Letting the property as an assured tenancy means tenants can stay as long as they
keep paying the rent. But if the landlord had lived there once or is going to live
there again, as his only or principle home, he may be able to use ground one (the
owner occupier ground) to get the tenants out if he needs to.”
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Article produced by EveryInvestor.co.uk
