As a companion to our superguide for residential landlords, here's your guide to deposits and guarantors.
Unlike the superguide, this guide is aimed squarely at landlords with assured shorthold tenancies – these are where the property is privately owned, the tenants do not live with the landlord and the property is the tenant's main address.
So, whether you’re new to renting property or a seasoned landlord looking for a bit of a refresher, read on…
What you need to know about deposits as a landlord
At the beginning of a new tenancy, it’s strongly recommended that you ask the tenants to pay a deposit up front. This isn’t a legal requirement in itself, but there are a number of good reasons for asking for one.
NB: This deposit is not to be confused with a holding deposit, which is paid by the tenant to secure the property before the necessary checks are done and a tenancy agreement is signed.
How can landlords protect themselves with a deposit, and how much can the deposit be?
First things first, asking for a deposit is a protection for you, the landlord. It’s there to stop you from being out of pocket if the tenant damages the property or fails to pay rent.
The amount you can ask for is up to you, but the maximum currently allowed is a total equivalent of 5 weeks’ worth of rent. This should hopefully give you enough wriggle room in the event a tenant leaves before paying their last rental instalment and there are repairs or cleaning required.
NB: The deposit cap was cut from 6 weeks to a maximum of 5 weeks, or 6 weeks where the annual rent is over £50,000, while holding deposits are now capped at no more than 1 week’s rent – since the Tenants Fees Bill 2019 came into force on 1st June 2019.
Deposits can be paid via bank transfer, cheque, cash or card payment but, importantly, they can't be paid by an offer of property – a car or jewellery, say – to be held as collateral.
The Tenant Fees Act 2019 (the Act)
What are the key changes
As well as the changes to security and holding deposits mentioned above, the Act also brings to an end the ability for landlords and agents charging upfront fees to their tenants, including big changes to how references are paid for.
In all, while this may be heralded as a bonus for the tenant, the likely upshot is that lost charges will be added to the monthly rental payable by the tenant.
Does this apply to England only?
Yes, the Act applies to England only. Wales may introduce a version of the Act in due course. The Act came into effect on 1 June 2019 and, while there are some transitional provisions for existing ASTs, all new AST agreements will fall within the Act parameters.
What it means in a nutshell – Services
Landlords in England can only apply certain charges, such as for key replacements, tenancy agreement variations, early termination by the tenant, and levying a charge when rental sums are late for over 14 days. Particular rules apply that are beyond the scope of this brief guide.
A large number of traditional services provided by the landlord or its agent will not be chargeable or payable by the tenant.
• initial client credit checks for tenants and guarantors
• obtaining references for tenants
• contents inventories at the start of the Term
• administrative fees
• assessing guarantors
• gardening and other services (this doesn’t include utility agreements and insurance arrangements, council tax)
• end-of-term cleaning arrangements
Landlords will be able to claim for damages where there’s a breach of the AST but any such costs claimed must not be a ‘penalty’ and shouldn’t therefore exceed the costs actually incurred or loss suffered as a result of the breach. The tenant must be given evidence of the costs incurred by the landlord.
What it means in a nutshell – holding deposits
The payment of a holding deposit is permitted under the Act but can be no more than 1 week’s rent.
Once the landlord and tenant have agreed the detailed terms of the relationship in principle, the landlord has 14 days to carry out reference checks etc. and then to finalise the written terms in the form of the assured short-term tenancy agreement. This time frame can be extended by mutual consent in writing.
If the written agreement isn’t signed by both parties within this 14-day period (or as extended by mutual agreement), the holding deposit must be returned to the tenant.
If the landlord makes the decision not to go ahead with the agreement, the holding deposit must be returned by the landlord to the tenant within 7 days of the landlord’s decision to withdraw. If the parties simply fail to come to an agreement within that 14-day period (or as extended), the landlord must return the holding deposit within a further 14 days of that period ending.
There are exceptions where the landlord may retain the holding deposit and written reasons must be given to the tenant where these exceptions arise. These exceptions include where:
• the proposed tenant doesn’t have a right to rent a property in the UK and the landlord/agent did not and could not reasonably have been expected to know this before the holding deposit was accepted
• the proposed tenant provides false or misleading information
• the proposed tenant notifies the landlord/agent within 14 days from receipt of the holding deposit that it withdraws from the negotiations
• the landlord/agent takes all reasonable steps to enter into the AST within 14 days from receipt of the holding deposit, but the tenant fails to take all reasonable steps to enter into the tenancy
What it means in a nutshell – references
Landlords and agents can’t require a tenant to obtain a reference through a third-party reference service as a condition of granting a tenancy. A tenant can be asked to provide a reference from their previous landlord or agent, but landlords and agents are prohibited from making a charge for this reference. Tenants will not be required to pay for credit checks.
While some tenants may seek to provide their own references, landlord/agents may not consider this suitable and may simply take the cost on the chin.
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