The end of Rigsby?

AS HOUSE prices soar ever upwards, more of us are stuck with renting for longer. According to the Department for Communities and Local Government (DCLG), the number of privately rented households in England and Wales has risen from 2 million in 2002 to 2.5 million in 2005, or 12 per cent of all households. The situation is worse in London, where 17 per cent of households are now privately rented.

As a result of the increasing importance of the rental sector, the Government is tightening the rules. All tenants, landlords and letting agents will have to comply with the new tenancy deposit protection legislation, part of the 2004 Housing Act, from April.

How much is a deposit?

A tenant is generally required to pay between four and six weeks’ rent as a deposit to a landlord. The average deposit in England is £700. Before returning the deposit at the end of the tenancy term, the landlord may deduct an agreed sum to cover the cost of cleaning or damage to the property.

Why do deposits need protecting?

According to Phil Alker, a government advisor on tenancy deposit protection at the DCLG, up to 17 per cent of tenants have had their full deposits withheld regardless of the condition of the property. The Government did initiate a couple of voluntary schemes, but, unsurprisingly, rogue landlords did not flock to sign up to them, so legislation was built into the 2004 Housing Act.

Why can’t tenants just take rogue landlords to court?

They still can. But, according to Alker, “the average time for a case to get through the small claims court is five months”. And you have to pay. Under the new rules, a free alternative dispute resolution (ADR) service will aim to deal with each dispute in under 28 days.

So how will it work?

Anyone who takes a deposit will now be required to join one of two statutory schemes. The first is custodial, and is the default option. When a tenant pays a deposit, the landlord has 14 days to pay the sum to a third-party supplier and notify the tenant of the details. The service will be free and will be funded by the interest on the deposit pool. Any surplus interest will be paid to the tenant, so there’s not much in it for a landlord except ease of use. At the end of the tenancy, the supplier returns the deposit, minus any agreed deductions, to the tenant.

The second option is insurance: the landlord holds the deposit and repays it to the tenant as normal, but must also pay a fee (as yet unspecified) to a deposit protection insurer, and notify the tenant of the details. Then if the landlord withholds the deposit at the end of the tenancy, the insurer refunds the tenant and pursues the defaulting landlord through the courts.

What happens if the landlord and tenant can’t agree on the sum to be deducted?

“Say the landlord thinks he should knock off £100 and the tenant thinks it should be £50,” says Alker. “The £100 goes into a disputed pot, the rest is paid back to the tenant and the alternative dispute resolution service takes over and allocates the disputed sum.” This service is free.

Who works for the ADR and what power does it have?

A panel of lay and specialist arbitrators, including surveyors and lawyers, who will determine each case. “It’ll be fair, objective and transparent,” says Alker. One or both parties may still choose to go to court instead of the ADR, but if both parties do agree to go to the ADR, they have no subsequent recourse to the courts.

I’m a tenant and I need my deposit back right now to secure the contract for my next property. How quickly can I get my money back?

If your landlord has signed up to an insurance scheme, he or she holds your deposit and can arrange to pay back any undisputed sums as early as is practical. If they have joined the custodial scheme, the scheme is legally obliged to return your deposit within ten days of the end of the tenancy agreement.

When will this legislation come into force?

April 6, 2007.

Will it apply to every tenancy agreement in the country after that date?

No, only to “assured shorthold tenancies”, which make up 1.7 million tenancy agreements out of a total of 2.5 million. Tenancies that do not qualify for protection are generally either long-term rental contracts signed more than 15 years ago, or those dealing with rental sums of more than £25,000 per year.

Who will administer the new protection schemes?

The custodial scheme will be run by one supplier (Computershare Investor Services Plc), and there will be two insurance suppliers — one that will direct its scheme primarily at landlords (Tenancy Deposit Solutions Limited), and the other at letting agents (the Dispute Service Limited). All three schemes will compete for business from landlords.

I’m a landlord and I’m getting fed up with the Government always telling me what to do. Can I refuse to comply?

Your tenants are responsible for finding out how you are protecting their deposit. The Government is conducting a publicity campaign to ensure that all tenants know how to ask for their rights. “But we know tenants can be vulnerable and might be intimidated by landlords,” says Alker, “so we have to put in place backstops.” If you are found not to have joined a scheme, you will forfeit the right to evict a tenant because of rent arrears, and a court will be able to fine you up to three times the deposit amount, to be paid to the tenant. You cannot plead ignorance.

What will be the effect of the legislation?

More deposits should be returned to tenants, and fewer disputes should occur, “as sector professionalism increases, with more inventories and a greater awareness of tenants’ responsibilities,” says Alker. “Homeowners forget how significant a deposit is. For many tenants it’s their only pot of money. If they lose it, it’s very hard to find a deposit for their next property.”

www.communities.gov.uk/tenancydeposit