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Wed 8th September, 2010
News
What are Tenancy Deposit Schemes? |
31st May 2006 |
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Of interest to mortgage introducers involved in the residential buy-to-let sector will be new rules designed to protect the deposits of tenants in assured shorthold tenancies.
Government figures claim 11% of properties in England and Wales are rental properties and the average rental deposit is £477.00. It claims millions of pounds each year are being withheld by a minority of unscrupulous landlords.
The Government’s aim is to remove the risk of misappropriation of tenants' deposits by creating tenancy deposit schemes.
The Office of the Deputy Prime Minister will award contracts to third party administrators, known as the “scheme administrators” who will run and manage the schemes.
The Housing Act 2004 stipulates that from 1st October 2006, any deposit taken by a landlord must be placed in an authorised tenancy deposit scheme within 14 days of receipt.
A landlord will not be permitted to take a tenants deposit unless it is going to be safeguarded by a tenancy deposit scheme. The landlord will also be required to inform the tenant of the relevant “prescribed information” regarding the scheme that has been chosen within 14 days of receiving the deposit.
A landlord’s failure to comply with the new legislation will result in the court ordering the landlord to pay the deposit into a designated account held by the scheme administrator and to pay the tenant the sum of money equal to three times the amount of deposit within 14 days of the order.
The landlord’s failure to comply will also result in the landlord being unable to serve the statutory two months notice required to gain possession of the property from the tenant.
Landlords will have the option of two types of tenancy deposit schemes, a custodial scheme and an insurance scheme.
A custodial scheme is where a landlord will pay the tenants deposit into a designated bank account, and will not remove the deposit until the tenancy has ended. Once the tenancy has ended either the landlord or tenant can apply for the deposit to be returned to them. If both parties agree on how the deposit should be split the scheme administrator shall return the monies within 10 days of receiving the request.
The custodial scheme is free to landlords as the supplier will be paid by the interest generated by the deposits held in the scheme. Any remaining monies will be used to pay interest to the tenant/landlord.
An insurance scheme is where the landlord will retain the deposit and pay a premium to a designated third party. In the event of a dispute the landlord will be required to transfer to the scheme the amount of the deposit that is in dispute. If the landlord fails to pay the deposit into the account the insurance will come into effect and the deposit will be returned to the tenant, within the stipulated 10 day timescale.
Where the scheme administrator has returned the deposit monies to the tenant but not received payment from the landlord, the scheme administrator may remove the landlord from the scheme and therefore the landlord instead will only be able to use the custodial scheme.
All schemes will be required to operate an Alternative Dispute Resolution service to aid a rapid resolution of disputes over deposit monies.
In the event of a dispute under either of the above schemes the landlord and the tenant can the either agree to use either scheme's Alternative Dispute Resolution service whose decision will be binding or they will have the option of taking the matter to the courts.
The government are tackling the issues raised by tenants concerning un-returned deposits by regulation. As the buy-to-let market continues to grow the government will no doubt be looking to further tighten control of the sector as well as seeking additional tax raising opportunities.
For further information, please do not hesitate to contact Miss Louise Hannington at Lawcomm Solicitors on DDI: 023 8038 1932 Direct Fax: 023 8038 8326 Direct E-mail: louise.hannington@lawcomm.co.uk
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