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There is nothing to say that a landlord must take a security deposit, but it is always advisable to do so. Most landlords choose to take a security deposit from their tenants to provide some protection against the risk of non-payment of rent and/or damage caused to their property. It is important, however, to understand the rules about taking a security deposit, which have changed in recent years.

Major legislation was first brought in back in 2007, whereby security deposits needed to be protected in one of the approved government schemes. This was introduced amid claims of unscrupulous landlords simply pocketing the security deposit by default at the end of the tenancy, regardless of the tenant’s conduct. These schemes either hold the money (custodial schemes) or insure against its disappearance (insurance schemes). They also act as arbitrators between landlord and tenant if there is any disagreement in regards to the return of the security deposit at the end of the tenancy.

CRJ Lettings is a member of the DPS (Deposit Protection Service) and their custodial scheme. It’s free to use and it means neither the landlord nor the letting agent is holding the tenant’s security deposit; it’s held in a government-backed ring-fenced account throughout the tenancy.

This seems preferable for both landlords and tenants, compared to letting agents who hold the deposit monies in their own bank accounts (via the insurance schemes). There have been too many stories of fraudulent (or just poorly managed) letting agencies dipping into these funds to cover their own cashflow, or even going bust and losing the deposit monies in the process (which the landlord will have to cough up when the time comes to repay the tenant).

Whichever scheme you opt for though, they bring with them additional paperwork and responsibilities, for which it is absolutely critical you get correct. The deposit needs to be properly protected and the paperwork served to the tenants within 30 days of receiving their money. If this is not done, the landlord cannot serve notice upon the tenant if it becomes necessary and can also be held liable for compensation in the amount of three times the deposit!

       

In 2019, security deposits were capped to a maximum of five week’s rent (in most cases). This rather curious addition to the Tenant Fees Act has meant it is now far more difficult for tenants without a squeaky-clean credit history and good references to be accepted. Previously, such worries could be bypassed by taking a larger-than-normal security deposit, but the government has made this practice illegal. The same goes for tenants with pets; which is why you now regularly see premiums attached to the rental amount for such individuals instead.

Recently, there have been a plethora of ‘zero deposit’ schemes pitched as an alternative to tenants stumping up the deposit themselves. Personally, I’m not a fan of these schemes in their current form. Most landlords prefer to rent to tenants with some ‘skin in the game’ and most (good) tenants prefer to hand over a security deposit, knowing they’ll get it back at the end of the tenancy, rather than paying an upfront or monthly fee that they won’t see again.

A major criticism of security deposits though is the challenge many tenants face in raising a second one whilst their current security deposit is tied up in their present tenancy. The government are talking about introducing a ‘transferable’ deposit, whereby the same security deposit passes from one tenancy to the next (making it easier for tenants to move home). The problem here is that you never truly know if a tenant’s security deposit will be re-paid in full until they have vacated the property, by which time they’ll have already moved home (for which they’ll need the security deposit for). So, it doesn’t seem altogether workable without some form of insurance product involved, which is likely to cost tenants money one way or another.

If you’re a landlord and all of the above sounds like too much trouble, or you’ve not been taking all the necessary steps (or worse, you’re with a letting agent who hasn’t), please feel free to give me a call to instruct me to take this important burden away from you.


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 3 bed house in Chichester,
£275,000, 5.2% yield
 
Summary:
3 bed house in Chichester
Listed for sale on 10/10/22 @ £275,000
Rent = £1,200pcm
Yield = 5.2%
Last sold for £220,000 in 2015 (+25% in 7 years)
The property is on the market with Bell & Blake and full details can be found on Rightmove via the following link: www.rightmove.co.uk/properties/127921706

Rumours started swirling on Tuesday that, despite being a manifesto commitment, the plans to ban Section 21 evictions (part of the Fairer Private Rented Sector White Paper published in June) were due to be shelved.

During PMQs on Wednesday Liz Truss shut down these rumours by confirming she will carry out the commitment to get rid of 'no-fault evictions'.

So there was nearly some positive news for landlords...just as many are now realising the harsh impact interest rate increases alongside the Section 24 mortgage relief changes really means for them (an extremely unfair change of policy I raised long ago, but people seemingly dismissed as the dropping interest rates (and thus mortgage payments) covered up the fuller effects of the policy).

See you in a fortnight!

CLIVE JANES
Owner
t: 01243 624599
Voted 'Best Letting Agent in Chichester 2020'
with a 5/5 average rating from 190 customer reviews
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