Vital deposit scheme becomes law in April

Published: 27th February 2007

Each year residential landlords take deposits worth about £1.2bn from tenants to secure them against damage to the rented property and contents. According to statistics, 19 per cent are not returned in full and 11 per cent are not returned at all.

From 6 April 2007 a new law governing housing deposits is due to come into force affecting many thousands of property landlords and letting agents. The Tenancy Deposit Protection Scheme was originally supposed to be implemented from October 2006 but was postponed and there are fears that it will be delayed again from the April start date as the Welsh Assembly has yet to give approval to the scheme. According to Department of Communities and Local Government the legislation will go ahead in England on 6 April, even if it has to be implemented in Wales at a later date. The hope is that in can go ahead in both countries at the same time.

Essentially the legal change will compel a landlord to hand over deposits to a third party or have an insurance scheme cover it. The scheme follows over 20 years of campaigning and is designed to protect tenants from unscrupulous landlords. When the scheme comes into force all new tenancies created on or after the start date, as well as any tenancy renewals, will need to follow the correct procedure. Failure to protect deposits in this way will result in the landlord being forced to return the deposit to the tenant and a court can order the landlord to pay up to three times the amount of deposit if he remains in default at the date of any court order. In addition, landlords who break the rules will be unable to regain possession of their properties by the serving of a Section 21 Notice, or to enforce the terms of the tenancy agreement.

Landlords will still be able to make deductions for damage but in the case of a dispute the third party or insurance company will act as the arbitrator and pay out money owed to tenants.

Even when the Scheme is implemented, landlords will be "at liberty to take commercial decisions" (as one member of proposed insurance scheme put it). This means that the landlord's costs of insurance scheme membership and the premium, may be passed on indirectly to tenants by means of increased rents. This is obviously not an intended consequence and it is hope the government will monitor the situation and take corrective action if necessary.

Key to the success of the Scheme will be the preparation and agreement of a full and detailed inventory of the property and contents at the commencement of the tenancy. It is not realistic to expect every landlord and tenant to agree and there will be plenty of work for independent inventory clerks. Trouble is there are too few such clerks at present, but we can expect this to become a growth area for RICS amongst others.

As always prevention is better than cure and tenants are urged to make sure they are letting property from a reputable company or landlord - preferably one who is a member of a professional governing body such as Association of Retail Letting Agents (ARLA). For further information contact ken.salmon@maceandjones.co.uk