The Renters’ Rights Bill is progressing through parliament and is expected to become law this summer. The new legislation is set to introduce significant reforms to the private rental landscape including changes to payments made by tenants.
In this article, we consider the current position with regards to landlords taking security and holding deposits and revisit the consequences of landlords failing to comply with the deposit protection requirements. We also explore the changes that landlords could see when the Renters’ Rights Bill becomes law.
A security deposit can offer a landlord some comfort in knowing there is a safety net should the tenant breach the terms of the tenancy agreement, e.g. causing damage to the property or failing to pay any rent.
The current position in England is that landlords can request security deposits of up to five weeks’ rent if the annual rent for the property is less than £50,000, and six weeks’ rent if the annual rent is above £50,000. These caps were fixed by the Tenant Fees Act 2019 and a deposit in excess of the relevant threshold is a prohibited payment under the 2019 legislation.
If a landlord receives a deposit, there are strict statutory requirements which they must comply with. Non-compliance can leave a landlord vulnerable to a claim for damages and/or left unable to seek possession via a 'no fault' section 21 notice.
The requirements include:
Prescribed information is defined by legislation and must include:
What if a landlord fails to comply?
If a landlord fails to comply with the deposit protection requirements, the tenant can make a claim for compensation. The court is obliged to award a minimum equivalent to the amount of the deposit and has discretion to award up to three times that amount for each breach.
A more significant consequence of failing to comply is that a landlord cannot serve a valid section 21 notice unless they have either returned the deposit to their tenant or agreed to pay them compensation.
What happens at the end of the tenancy?
At the end of the tenancy, the landlord and the tenant, or a representative such as an independent check-out clerk, should attend the property to evaluate the condition and create a report. At this point, parties should agree how to divide the deposit. If an agreement cannot be reached, then all deposit protection providers operate free dispute resolution services to help parties to reach a conclusion on how the deposit should be divided between them.
A tenant may pay a holding deposit equivalent to no more than one week’s rent to the landlord to reserve a property before signing a tenancy agreement. The rules governing the amount, taking and return of holding deposits are set out in the Tenant Fees Act 2019 and any payment which does not comply with the rules will be a prohibited payment.
The Renters Rights’ Bill proposes a new category of prohibited payments under the Tenant Fees Act 2019, in an effort to deter landlords from the practice of requesting large lump sum payments in advance from tenants. Payments of a refundable holding deposit of no more than one week’s rent and any security deposit will continue to be permitted payments provided that they comply with the provisions of the 2019 legislation.
Under the new legislation, landlords will only be able to evict their tenants via the section 8 route if they have complied with the statutory requirements relating to the handling and protection of security deposits. There is an exception for landlords seeking possession on the grounds of tenant anti-social behaviour and/or nuisance, annoyance, illegal/immoral use of the property.
Whilst the Renters’ Rights Bill is not currently proposing any substantial changes to the way security deposits are handled and protected, the previous government did explore ways in which the process could be reformed including the introduction of deposit passporting which would enable a tenant to transfer a deposit from one landlord to the next.
In theory, the ability to transfer security deposits would alleviate the pressure on tenants to raise the cash for a deposit every time they move house but this could disadvantage landlords if the deposit is transferred before any reasonable deductions for damage etc are made. For now, however, this remains a moot point as there is currently no provision for deposit passporting in the Renters’ Rights Bill.
It's important that landlords keep up to date with forthcoming changes as compliance will be a pre-requisite to obtaining possession under the new regime.
If you have any questions about the contents of this article, please contact either Amelia Pine or Scarlett Richards in our property litigation team.
