Landlord Advice Regarding Deposits

For many landlords the same goes for tenants and deposits. But is that really the case?

There are things that just seem to go together—salt and pepper; fish and chips, Ant and Dec—you just don’t get one without the other.

For many landlords the same goes for tenants and deposits. But is that really the case?

The advantages of a deposit are fairly obvious:

  • You get some reassurance that your tenant actually has some money;
  • You have some money in case your tenant doesn’t pay the rent or causes damage.

Unfortunately, taking a deposit these days comes with some major disadvantages.

If you have taken a deposit, it has to be placed in a tenancy deposit scheme within a strict time limit and you have to provide the tenant with specified information—again within a very strict time limit.

We find that many landlords who consult us with tenancy problems have failed to comply with the deposit requirements in some way.

Failure to comply means that you may have to repay the deposit and pay the tenant up to three times the value of the deposit on top. You are also unable to serve a section 21 notice until you have returned the deposit.

Given that there is therefore a significant risk that you will have to hand back the deposit and pay damages as well, is a deposit really necessary?

What are the alternatives? It depends what you want to achieve.

Do you want to ensure that your tenant can actually afford the rent? Why not take several months rent in advance?

Do you want some security against damage or non-payment of rent? Why not take out insurance? You can even ask the tenant to cover the premium.

You could (and probably should) ask for a guarantor. This is a (hopefully solvent) third-party who promises to pay the rent if the tenant doesn’t and/or to pay for any damage the tenant causes.

Why not do all of the above?

You will need to make sure that your tenancy agreement is properly drafted to avoid the risk of rent in advance being argued to be a deposit in disguise and that your guarantor signs a legally binding guarantee but you are having your agreements prepared by a solicitor or other suitably qualified person anyway—aren’t you?

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