If you’re a property landlord looking to rent your buy-to-let property out, you’re going to be needing to take a security deposit to cover any damage or unforeseen expenses like rent arrears. However, it can be a little confusing about how much deposit to take, what to do with the money and what the law says on the subject.
So, in order to provide a little clarity, we’ll now take a look at the subject more closely, so that you, as the landlord, can get a firm grip on how to proceed. By reading on, you’ll find out exactly what you need to know about security deposits and the regulations that surround them.
Is taking a security deposit mandatory by law?
The simple answer is, no, there is no legal requirement, however, property landlords choosing not to take a security deposit, take this path at their own peril, as it provides no way of recovering costs that go above and beyond what’s considered to be normal ‘wear and tear’. Having a security deposit in place not only gives you a way of paying for this type of thing but it also likely to make your tenants more careful for fear of losing money.
How much is the right amount for a deposit?
Aside from the rules set down by the Tenant Fees Act 2019, which cap the deposit amount that property landlords are able to ask for at 5 weeks’ rent for properties with an annual rental cost of £50k per annum, there are no hard and fast rules that need to be adhered to. However, this does give you a yardstick to work to, as if for example, you’re charging £800 rent per month, you’ll looking at a security deposit of around £1,000.
Do I just put the deposit in my savings account?
Before 2004, that is what most property landlords did with their tenants’ security deposits, but since then the Tenancy Deposit Scheme (TDP) came into force in a move designed to make things fairer for everyone concerned. The scheme includes legislation that makes sure that deposits are handled fairly and that if the terms of the tenancy agreement are adhered to, that the whole deposit is returned.
The scheme stipulates that any property landlord in England and Wales must place the deposit into one of three government-approved schemes:
- The Tenancy Deposit Scheme
- The Deposit Protection Service
At the end of the tenancy, the deposit scheme will release the funds back to the tenant, subject to the conditions of the tenancy being met. What’s really important to remember is that it’s the responsibility of the landlord to ensure that the tenant’s deposit is protected, irrespective of whether a letting agent is used or not.
How soon do I need to protect the deposit?
The law dictates that buy-to-let property landlords need to protect deposits taken from their tenants within 30 days of receiving them, which is not necessarily going to be exactly the same date as the beginning of the tenancy. Along with the deposit, the following information needs to be given to the tenant:
- The address of your buy-to-let property
- Which type of deposit scheme was chosen
- The total amount of deposit taken
- Details of how to contact the deposit scheme in the event of a dispute
- Details of any 3rd party involved in the taking of deposits e.g. a letting agent
- Details of how to apply to have the deposit returned
The provision of these details to the tenant is mandated by law, so it’s a good idea to get your tenants to sign something to attest to the fact that they’ve received them.
What happens if I receive the deposit in instalments?
Whilst it’s not advised to take deposits in instalments, it can prove difficult for some people to raise the necessary funds straight away and the law is pretty clear on what property landlords need to do in this kind of scenario. It simply states that what you have received needs to be protected within 30 days, although there are some stipulations that make things more difficult to proceed in this way.
For example, the MyDeposits scheme will make you start a new protection agreement when more deposit is added, which will usually incur an admin fee or two. This is why it’s better to do it all in one go, but if the tenant agrees to pay these charges, it is possible.
So there you have it – there are set guidelines for property landlords to follow when taking security deposits from their tenants and it’s something that needs to be adhered to by law. Obviously, we’ve only covered the main points, so if you want to see all current legislation in detail, you can do so by visiting the official website legislation.gov.uk. Just make sure that you’re covered and that you know what your obligations are, as it’s better for both you and your tenants that everything is followed correctly.
Thanks for taking the time out to read our blog. We’ll be back again with more tips and advice from the property investment world, so make sure you check back with us soon.
This post has been originally featured in Progressive Property