LANDLORDS are to be barred from keeping deposits from October in a dramatic move that will shift the balance of power in favour of tenants, The Times has learnt.
Property owners will be required to hand over deposits to a government-appointed private company as part of a little-known change pushed through by John Prescott, the Deputy Prime Minister. This came after research showing that one in five tenants feels landlords unfairly retain all or part of their cash.
This will place extra pressure on the buy-to-let market, with half a million private landlords facing additional fees, extra bureaucracy and the prospect of being barred from their property if they do not comply with the scheme’s tight deadlines.
If the tenant and landlord fail to agree how much deposit should be returned, the case will be sent to arbitration. This could mean inspectors visiting the property to examine the size of stains and the condition of furniture to distinguish between damage caused by a tenant, which can come out of a deposit and “reasonable wear and tear”, which cannot.
The new law will not protect landlords whose tenants withhold their final month’s rent. About 20 per cent of tenants are believed to do this, often leaving landlords out of pocket on repairs. But the company running the deposit scheme is not allowed to hand the money back to landlords, who must instead go to court to recover it.
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Despite only nine months to go until the rule change, the Government has not chosen the private company to run the scheme. Whoever wins the contract will be allowed to siphon off some of the interest from the billion-pound deposit reservoir. They will also receive a fee from landlords when they send in the deposits.
A spokesman for the Office of the Deputy Prime Minister, which is overseeing the changes, said that the size of the fee had not been determined, but “it should not be that much”.
The legislation will apply only to properties rented after October 1. Approximately 40 per cent of 2.2 million tenanted properties change occupant every year.
The Government is drawing up new rules to determine what represents reasonable wear and tear. In the past, landlords have frequently deducted money from deposits for steam cleaning carpets or curtains, even though the Inland Revenue gives a 10 per cent tax deduction to cover such expenses.
The legislation, which was added to the 2004 Housing Act at the last minute, introduces draconian measures for landlords who fail to comply. They face being fined up to three times the value of the deposit — which could be up to £6,000 — if they do not put the deposit in the scheme within 14 days. Landlords will also lose the right to evict tenants from their property until any dispute has been resolved.
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The Office of the Deputy Prime Minister denied that the provisions were unfair on good landlords. “These provisions need to be put into place to force the minority of landlords to act responsibly by safeguarding tenancy deposits. The provisions put into place a simple process for all landlords to go through to ensure tenancy deposits are safeguarded,” it says in a document.
Baroness Andrews, the Housing Minister, said that while most landlords and letting agents repaid deposits, a substantial minority did not. “The Tenancy Deposit schemes will ensure long-overdue protection for more than £740 million of assured shorthold tenancy deposits, currently held in England and Wales and above all help to drive up standards in the private rented sector,” she said.
Estate agents and professional renting bodies will be bound by a similar insurance-based scheme, which they support. They already operate a voluntary system, with an independent panel, known as the Dispute Service, that oversees deposits.
BROKERING PEACE
Amount of deposit: £2,910 Amount in dispute: £1,525.23
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The landlord called attention to discolouration on the curtains in various rooms. The landlord demanded £337 for cleaning expenses. Because the curtains had not been cleaned before the beginning of the tenancy it was resolved that only 25 per cent should be paid by the tenants.
The landlord was dissatisfied with the condition of the floors in the bathroom and bedroom. Considering that the desirability of the property could be affected, it was felt that a third of cleaning costs should be covered by the tenants.
Furthermore, there was the issue of the damage to the kitchen hob, which the landlord claimed had occurred during tenancy. The original condition of the hob was unknown. The adjudicator concluded that the hob may have been already faulty, making a 50/50 split of repair costs a reasonable settlement.
Verdict: tenant liable for £926.56, landlord for £598.67
Example from the Dispute Service, a voluntary scheme set up by the rental industry
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Amount of deposit: £2,910.00 Amount in dispute: £1,525.23 The landlord called attention to discolouration on the curtains in various rooms. The landlord demanded £337.00 for cleaning expenses. Because the curtains had not been cleaned before the beginning of the tenancy it was resolved that only 25 per cent should be paid by the tenants.
The landlord was dissatisfied with the condition of the floors in the bathroom and bedroom. Considering that the desirability of the property could be affected, it was felt that a third of cleaning costs should be covered by the tenants.
Furthermore, there was the issue of the damage to the kitchen hob, which the landlord claimed had occurred during tenancy. The original condition of the hob was unknown. The adjudicator concluded that the hob may have been already faulty, making a 50/50 split of repair costs a reasonable settlement.
Verdict: tenant liable for £926.56, landlord for £598.67 Example from the Dispute Service, a voluntary scheme set up by the rental industry
THE TENANT
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FIONA MELLOR, 29, a research radiographer, is a serial renter of private flats. “The price of property means I just can’t buy on my own,” she says.
Ms Mellor has had one nasty experience with a letting agency that withheld part of the deposit on a student flat she was renting with friends. She says: “They said it was for a replacement shower, but we hadn’t broken the shower. I rented the same flat the next year and the same shower was there.
“It was impossible to get anything out of the agency. Their attitude was, ‘If you want your money back, sue us’, but we were students.”
Ms Mellor, who is renting in Bournemouth, Dorset at present, believes that the new rules could help to protect tenants from unscrupulous landlords. “You can’t get references from a landlord, but they can get one from you.
“If it works, it will be fantastic. If it doesn’t work it’ll be yet another cog in a big machine, with just another middleman to deal with.”
THE LANDLORD
GEORGE GEORGIOU, 27, has built up a portfolio of about 40 properties in London.
He has had only one serious disagreement with a tenant over a deposit. One of his tenants stubbed a lit cigarette out in a bin full of tissues, setting fire to her flat and damaging others in the block. “I live nearby and could hear the fire engines but didn’t know it was for one of mine. I had to buy the whole block wine and flowers to apologise for the smell and the damage. And she was adamant she wanted her deposit back.”
Mr Georgiou believes that disputes are inevitable. “The tenant will always believe he’s right and the landlord will always believe he’s right.” But he thinks that the new rules could ease tensions. “The idea is a good one, in principle. Some of the letting agents are worried about costs. But the scheme is meant to look after tenants and landlords.
“Some landlords are mean, and spend the deposits. I know landlords like that.”