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I just reviewed the detail of the new deposit cap that comes into force on 1st June.
Currently I take 8 weeks deposit following a bad experience where around £40,000 of malicious damage was done by an [inherited] tenant. 8 weeks was the maximum (reasonably and legally) that I could take, so that gave me a good level of comfort as does malicious damage insurance.
The reduction to a 5 week deposit (6 for annual rentals over £50,000*), I feel, leaves me more exposed, but there appears to be little I can do about it. Or is there?
I guess one option is to charge a slightly higher rent (a few percent only) such that the additional rent acts as a premium to cover damages in excess of 5 weeks rent. Clearly an unitended consequence for the tenant, but also note that this money is taxed, whereas reasonable dilapidation deduction/s from a deposit are not taxed. Rentable values are bounded by market forces, so this approach may reduce appeal and so backfire.
I recall seeing deposit replacement insurance schemes. These are intended I believe where a tenant cannot afford a deposit, but perhaps they also might also be used to fill the gap? I just checked one which offers just 6 weeks cover so the extra week offers minimal benefit. Perhaps the insurer's offering might be revised in the light of the new cap? Human nature however leads me to believe that greater care will be taken if an actual cash deposit has been paid.
The second unitended consequence is that I will be more selective to ensure than my tenants have good credit ratings and or some assets in case I needed to sue them to recover rent or delapidations. If other landlords do similar, then unfortunatley those higher-risk prospective tenants will find it harder to secure an tenancy.
A third unitended consequence appears to restrict the ability of landlords who accept pets to take an additional premium to cover damage. Any deposit over 5 weeks is now illegal (*), so this is no longer an option. The consequence, I predict, is that more landlords will unfortunately now not accept pets at all. Nice one you lawmakers! (sic)
We'll all be chasing the same tenants before to long, from lowly LL to the likes of Grainger!What will happen to those that don't measure up, will be interesting to see.
I stopped taking deposits when the rules changed for holding deposits
Today I take an guarantor and it works well maybe you should go down the same road
I find it works well
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
How do you ensure the guarantor pays?
I use an AST with a section for the Guarantor
Its easy to do
I home visit the Guarantor and credit check them and I like a home owner
Its a little more work but has paid dividends in the past
Do you ming elaborating? Perhaps with an example?
E.g. let's say the tenant pays £800 rent per month, you have their £800 deposit and the tenant causes £500 worth of damage. At the end of the tenancy, one would retain £500 of their deposit and return £300 to the tenant.
How would you deal with this situation with your guarantor?
A good Guarantor in invaluable I have called on there services quite a few times
1 A tenant did a flit after being in a property for a year I called to the flat and it was filthy
I then visited the Guarantor who was surprised to see me I explained that The Tenant had gone and It was going to
be there responsibility for the clean up outstanding rent
I asked them to contact the Tenant and get my keys back arrange for the property to be cleaned and to pay the rent that was outstanding and I wanted a letter to end the Tenancy
The result was I got the Letter I got my Rent and I got my flat cleaned
Good result all because I had a home owner Guarantor
The good thing is if something goes wrong you have someone else to call on
That is very interesting. Thank you for sharing, it's not something I had considered before.
It still feels like a bold move to not accept a deposit but it is definitely something I will look into further.
I also made a recent post about what to do when a tenant withholds the last month's rent and advises you to take it from the deposit instead.
Something like this would prevent that I guess.
Very interesting indeed.
I find its a Leaver that can be pulled for lots of reasons
Deposits are only a few weeks rent its a small sum of cash for such an high cost investment
so I personalty dont use them I know some of my managing agents use them but I think they are a nightmare to protect ect
Thanks DL (and Adam) for your suggestion. I like it.
No reason of course not to have a deposit AND a guarantor as I have done once in the past where the T did not quite earn enough to pass the checks with a "proceed" recommendation.
And thanks to Jonathon for the link to the new Act... I had a good read of this and the detail may require further discussion. I suggest... download the pdf, then search for "Schedule 1"; this defines "permitted payments" (as opposed Prohibited payments" which are now illegal). These include rent, deposit, holding deposit, Payment in the event of a default, etc. Worrying thing re. defaults is only if it is a "relevant default" (loss of key or rent 14 days late after due date).
I see no mention of payments for dilapidations, cleaning etc. And I'm unclear as to whether payments for such items is permitted when they exceed the 5 or 6 weeks deposit amount?
Whilst the Act looks VERY restrictive, a saving grace is where it says "A payment of damages for breach of a tenancy agreement or an agreementbetween a letting agent and a relevant person is a permitted payment." ("Relevant person" by the way is the tenant)
I need to review it again, with stiff drink in hand. My first impression is that out tenancy agreements will need revising before use!
I like guarantors. Two if possible to spread the risk .
Close family who are home owners / steady jobs and a good wad of cash in their savings account are worth their weight
Is there anything to stop you taking an additional deposit / rent / tenant fee from a guarantor whilst still complying with the new Tenant Fees Act ?
I havent read the Act in detail but I assume it talks about the tenant not the guarantor
If possible many a father would surely step up to the mark to ensure their daughter`s application remained on top of the pile
Jonathan Clarke. http://www.buytoletmk.com