Housing Act 2004 – Proposed changes effective 6th April 2007
Movingspace have joined the Tenancy Deposit Scheme for Regulated Agents (TDSRA)... The Government has introduced amendments to the Housing Bill that will mean that neither landlords nor agents will be able to hold on to the deposit during a tenancy unless they are part of an approved scheme. The proposed changes are to be effective from 6th April 2007.
The legislation will require tenancy deposits to be safeguarded explicitly by schemes that also provide for the resolution of any disputes over their return. The Government itself will probably be responsible for a scheme under which landlords and agents give up control of deposits to a third party. It will look to recognised public bodies to seek its approval to set up schemes for their members and clients.
Movingspace have joined the Tenancy Deposit Scheme for Regulated Agents (TDSRA). www.tds.gb.com It is supported by the Association of Residential Letting Agents and the Royal Institution of Chartered Surveyors, shortly to be joined by the National Association of Estate Agents.
The deposit on taking the property is held in accordance with the Tenancy Agreement. It is held either by the Landlord or held as 'Stakeholder' by Movingspace under the protection of The Tenancy Deposit Scheme for Regulated Agents (TDSRA). Please check your tenancy agreements to see where your deposit is being held.
The Scheme will allow Movingspace to hold deposits on the property. If there are disputes over how they should be allocated which Movingspace cannot settle, they will be referred to the Independent Complaints Examiner. He will adjudicate within 10 working days of receiving all the necessary papers.
Movingspace have decided not to pass on the cost of the scheme membership fees to our clients, however there are some tenancies, which will fall outside the scheme that will incur charges where adjudication is needed. These tenancies are where the disputed amount is greater than £5,000 or for tenancies created before Movingspace membership of the scheme. The appointment of an arbitrator will incur an administration fee currently £235 shared equally between the landlord and the tenant; the liability for any subsequent costs will be dependent upon the Award made by the arbitrator. Any disputes over deposits on current tenancies (before our membership) may be referred to the ICE (Independent Claims Examiner) there will be a charge in these cases as they not covered by the relevant clauses i.e. £250.00 (inc VAT) or 10% of the full deposit, whichever is the greater.
We have now included the relevant clauses in our revised terms of business and all our new tenancy agreements. We must warn tenants that not all Landlords will require Movingspace hold the deposit, however this will be specified in the Tenancy Agreement. In these situations the Landlord must:
- deal with a deposit in accordance with an authorised scheme,
- comply with the initial requirements of a scheme within 14 days and
- give the tenant the appropriate information relating to the deposit within 14 days of receiving the deposit.
Until this is done, the landlord will be unable to regain possession of the property using the usual 'notice only grounds' for possession. Under Section 21 of the Housing Act 1988 a landlord can obtain an order for possession of an assured shorthold tenancy at any point after the first six months of the tenancy providing any fixed term has expired and they give the tenant at least two months written notice.
Preventing a landlord from being able to use this ground will provide the tenant with a much greater security of tenure and will act as an incentive for landlords to ensure deposits are safeguarded by a TDS.
We have included notes below, which are available on the Office of the Deputy Prime Minister’s Website www.odpm.gov.uk, which may answer questions that you might have, however we have included Q.23 here, which is self-explanatory:
Q.23 What happens if the landlord has not put the deposit into a scheme?
A. The tenant can apply for a court order requiring the deposit to be safeguarded or the prescribed information to be given to him. Where the court is satisfied that the landlord has failed to comply with these requirements, or is not satisfied that the deposit is being held in accordance with an authorised scheme, the court must either -
- order the landlord within 14 days of the making of the order to repay the deposit; or
- order the landlord to pay the deposit into the designated account held by the custodial scheme administrator.
The court must also order the landlord to pay to the tenant (or person who paid the deposit on his/her behalf) an amount equivalent to three times the deposit amount within 14 days of the making of the order. (Crown copyright)
The following Information was provided from the Office of the Deputy Prime Minister website on 01 June 2006 (Crown copyright)www.odpm.gov.uk
TENANCY DEPOSIT SCHEMES
SUMMARY
The Government is committed to ensuring that where a tenant pays a deposit to their landlord in good faith that it will be returned at the end of the tenancy, providing the tenant does not cause any damage or theft to the property. Where private sector landlords or their agents require tenancy deposits they should be safeguarded by a tenancy deposit scheme. Therefore, provisions were introduced to the Housing Act at Lord's Committee stage to ensure tenancy deposit protection for the majority of private sector tenancies.
BACKGROUND
Deposits are taken by landlords to secure a financial commitment from the tenant to prevent loss or damage arising from the tenant's negligence or breach of the tenancy agreement. In the event of any damage (but not fair wear and tear), unpaid rent at the end of a tenancy and other losses consequent of the actions of the tenant, part of or the full deposit may be withheld. Where such losses do not arise, the deposit should be returned to the tenant promptly and in full. Evidence suggests, however, that deposits are being withheld by landlords and agents without justification damaging the image of the private rented sector. Tenants frequently report that poor practice on the part of their landlord/agent in the course of the tenancy leads them to withhold their final month's rent in the belief that their deposits would otherwise be unreasonably retained. Some tenants who default on their last month's rent will have caused damage, sometimes extensive, which the landlord will then have to cover in full.
The provisions in the Act will make it a requirement that any landlord who wishes to take a monetary deposit must safeguard that deposit with a tenancy deposit scheme (TDS). The aims of the provisions are to remove the risk of misappropriation of tenants' deposits by landlords and letting agents.
TENANCY DEPOSIT SCHEMES
One or more TDSs will be secured to safeguard tenancy deposits paid by tenants who have assured shorthold tenancies. Once the provisions come into force they will apply to all new tenancy deposits taken in connection with assured shorthold tenancies. The vast majority of tenants in the private rented sector are assured shorthold tenants and will therefore be entitled to the protection offered by a TDS.
Schemes will have two main purposes:
- to safeguard tenancy deposits paid in connection with assured shorthold tenancies; and
- to facilitate the resolution of disputes arising in connection with such deposits.
Arrangements will be made with bodies to set up and manage Tenancy Deposit Schemes on the Government's behalf. These will be scheme administrators. At present the intention is to do this through contractual arrangements with private organisations. Both custodial (where the deposit is paid into a scheme) and insurance-based schemes will be chosen as a result of a competitive tendering process where each proposed scheme will be examined against set criteria.
Schemes are likely to be self-financing, but the Government may provide financial assistance to cover some costs for the schemes. The Government will also be able, if necessary, to provide a financial guarantee for schemes, for example, should they be at risk from becoming insolvent or if a scheme administrator misappropriates the monies in the scheme.
The Government will be able to check the accounts of a scheme (and other information) to ensure the scheme is offering value for money and not misappropriating tenants' deposits.
Any amount of money taken by a landlord or agent acting on their behalf, from a tenant which acts as a security deposit, even if it is not called a 'deposit', will be protected by this legislation. This is to counter the possibility that some unscrupulous landlords may attempt to avoid having to take a deposit in accordance with a TDS by calling it by another name.
REQUIREMENTS RELATING TO TENANCY DEPOSITS
A landlord will not be able to take a deposit in respect of an assured shorthold tenancy unless it is to be covered by a TDS. A landlord will have to:
- deal with a deposit in accordance with an authorised scheme,
- comply with the initial requirements of a scheme within 14 days and
- give the tenant the appropriate information relating to the deposit within 14 days of receiving the deposit.
Until this is done, the landlord will be unable to regain possession of the property using the usual 'notice only grounds' for possession. Under Section 21 of the Housing Act 1988 a landlord can obtain an order for possession of an assured shorthold tenancy at any point after the first six months of the tenancy providing any fixed term has expired and they give the tenant at least two months written notice.
Preventing a landlord from being able to use this ground will provide the tenant with a much greater security of tenure and will act as an incentive for landlords to ensure deposits are safeguarded by a TDS.
COURT PROCEEDINGS
Where a landlord has not arranged for a deposit to be dealt with in accordance with a scheme or provided the tenant with relevant information within 14 days of receiving the deposit, the tenant can apply directly for a court order for the landlord to repay the deposit to that person or pay it into a custodial scheme.
If the landlord has failed to comply with these provisions by the date of the court hearing, the court must make the order as requested and order the landlord to pay the applicant an amount equivalent to three times the deposit within 10 days.
CUSTODIAL SCHEMES
Under custodial schemes, a tenant pays the deposit to a landlord who is then required to pay the whole of this amount into a designated scheme account. The scheme administrator will hold the deposit until it is paid to the tenant or landlord, in accordance with their agreement or following a court order, after the tenancy has ended.
The designated account must not contain any other monies except deposits and interest accrued on those deposits. Where a scheme administrator returns a deposit to either tenant or landlord, they should do so with interest added at a rate specified by Government. Any interest additional to this can be retained by the scheme administrator and can be used to fund the administration of the scheme.
At the end of the tenancy, if both the tenant and landlord notify the scheme administrator that they have agreed that either the whole deposit is returned to one party or part of the deposit returned to both parties and the scheme administrator is satisfied that such an agreement has been reached, the scheme must pay out in accordance with the agreement within 10 days of receiving notification.
If no agreement is reached the scheme administrator will retain the deposit until either the tenant or landlord obtain a final court order specifying the proportion of the deposit to which each is entitled. The scheme administrator will then pay out in accordance with the court order within 10 days of receiving notification of the decision.
INSURANCE-BASED SCHEMES
Under insurance-based schemes, a landlord retains a deposit and only transfers it into a scheme if there is a dispute with the tenant at the end of the tenancy. The scheme will then hold the deposit until the dispute is settled. When the tenant and landlord reach agreement (perhaps through alternative dispute resolution) or a court decides the amount of deposit to which each party is entitled, the administrator will distribute the deposit amount to the relevant party. The scheme will need to pay the tenant regardless of whether the landlord has transferred the deposit to the scheme as required.
A landlord who retains a deposit in accordance with the terms of the scheme must undertake to reimburse the scheme on the directions of the scheme administrator if the scheme has had to pay out deposit monies to his tenant without receiving the deposit from the landlord.
Schemes must establish and maintain adequate insurance coverage to allow for the scheme to make such payments where a landlord fails to reimburse the scheme. A scheme may require participating landlords to pay contributions towards this or charge any other fees towards the administration of the scheme.
Where a tenant has notified the scheme that they have requested that the landlord pay them all or part of the deposit and this has not been paid to them within 10 days, the scheme must direct the landlord to pay the outstanding amount into a designated account within 10 days of being so directed.
Where either a court decision is made as to how much should be returned to either of the parties or the tenant and landlord have reached a decision, the scheme must pay this amount to the relevant party or parties. This payment should be made within 10 days of receiving notification that a decision has been made.
This payment should be made out of the amount held by the scheme, which has been transferred by the landlord as directed. Where the amount to be paid out is less than the amount held, the scheme must return the balance to the landlord. Where the amount to be paid out is more, the scheme must direct the landlord to pay the difference within 10 days. The scheme must still make the payment within 10 days of receiving notification that a decision has been made.
The designated account must not contain any other monies except deposits and interest accrued on those deposits. Where a scheme administrator returns a deposit to either tenant or landlord, they should do so with interest added at a rate specified by Government. Any interest additional to this can be retained by the scheme administrator and can be used to fund the administration of the scheme.
A scheme must ensure that the tenant does not wrongly recover sums in respect of the deposit twice, i.e. from a scheme and from the landlord by pursuing a court order directly against them. A scheme can require that it is reimbursed by the tenant for any amounts paid out to them, which they have then recovered from the landlord.
ALTERNATIVE DISPUTE RESOLUTION
All schemes (custodial and insurance-based) must make available alternative dispute resolution (ADR) mechanisms so that the parties can try to resolve disputes without resorting to the courts. At present there is very little an aggrieved tenant my do short of taking the matter to court which can be a lengthy and cumbersome process. ADR will not displace the courts or prevent either party from taking the matter to court but it gives the parties another option to try to resolve their dispute.
Note: Reference below to "landlord" should also be taken to include any other person that takes the deposit on the landlord’s behalf i.e. a letting agent.
Q.1 Why should the Government protect tenants' deposits?
A. So that, when a tenant pays a deposit, and he or she is entitled to get all or part of it back, the tenant can be assured that this will happen.
Q.2 What sort of tenancies will deposit protection apply to?
A. From 1 October 2006 (now posponed until 6th April 2007), all deposits taken by landlords in relation to assured shorthold tenancies ("AST") - the most common form of new tenancy - in England and Wales.
Q.3 How will deposit protection work in practice?
A. There will be two types of scheme: a custodial scheme and one or more insurance-based schemes. To avoid disputes having to go to the courts, both schemes will be supported by an alternative dispute resolution (ADR) service - although the use of this will not be compulsory. The tenant will not have the option of choosing the custodial or insurance-based scheme. That will be for the landlord to decide.
Q.4 When will the schemes come into effect?
A. 1 October 2006 for ASTs starting on or after that date. (Now posponed until 6th April 2007)
Q.5 Who will be running the schemes?
A. A competitive tendering exercise, under European Union procurement rules, is underway to select suppliers to run the schemes.
Q.6 What stage is the procurement exercise at?
A. ODPM has invited potential suppliers to submit outline proposals for running the schemes. Detailed negotiations will follow in February with short-listed suppliers. The successful suppliers will be awarded contracts for a custodial scheme, and one or more insurance-based schemes, in Spring 2006.
Q.7 How will the insurance-based scheme work?
A. The tenant will pay the deposit to the landlord as now. The landlord will retain the deposit and pay a premium to a designated third party. This will assure the return of the deposit (or part of it) to the tenant when he or she is entitled to it. Refer to Q.17 for what happens in the event of a dispute.
Q.8 Will a landlord pay for the deposit to be covered by an insurance-based scheme.
A. Yes. Landlords will pay a fee to belong to an insurance-based scheme. This will safeguard the deposit, should it be misappropriated.
Q.9 How much will the fee be?
A. That will be for the scheme administrator to decide.
Q.10 How will the custodial scheme work?
A. The tenant will pay the deposit to the landlord as now. But - and here's the difference with the insurance-based scheme - the landlord will then pay the deposit into the custodial scheme. At the end of the tenancy, if the landlord and tenant agree how the deposit should be apportioned, they will tell the scheme, which will pay out the money as agreed. Refer to Q. 18 for what happens in the event of a dispute.
Q.11 Will landlords have to pay to transfer the deposit to the custodial scheme?
A. No. The custodial scheme will be free to use by landlords and tenants.
Q.12 How, then, will the custodial scheme be paid for?
A. By the interest generated by the deposits held in the scheme. Part of this pool will go to the contractor to pay for the running of the scheme; the remainder will be used to pay interest to the tenant/landlord. Where the deposit, or part of it, is apportioned between the two parties (i.e. following a dispute), the interest will be apportioned pro-rata.
Q.13 How many landlords are there in England and Wales, and how many of them are members of professional organisations?
A. There are estimated to be about 700,000 landlords, of which some 15,000 are members of professional organisations. A further 175,000 are estimated to use agents. There are approximately 12,000 letting agents in England and Wales, of which some 4,000 are members of professional bodies.
Q.14 Will the proposed insurance-based scheme be open only to landlords who are members of a trade body or professional organisation?
A. No. the use of any scheme should not be dependent on membership of any trade body or professional organisation.
Q.15 Aren't these provisions unfair on good landlords?
A. No. Most landlords deal fairly with tenancy deposits. However, these provisions need to be put into place to force the minority of bad landlords to act responsibly by safeguarding tenancy deposits. Good landlords are already acting 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. This is in the interests of both landlords and tenants.
Q.16 What about disputes?
A. Each scheme will contain an alternative dispute resolution (ADR) service. In the consultation paper referred to in Q.28, we have proposed that, at the point the dispute arises, and provided both parties agree to use the ADR service, the ADR's decision will be binding, and there will be no recourse to the courts. If, on the other hand, one or other of the parties does not agree to use the ADR service, then the dispute will go to the courts to decide.
Q.17 In the event of a dispute in the insurance-based scheme, what happens to the deposit?
A. If there is a dispute and your deposit is safeguarded by an insurance-based scheme, your landlord will not be able to keep hold of all of it while the dispute is settled. Instead, the landlord will be required to transfer to the scheme the amount of the deposit that is in dispute. Then, they can either agree to use the scheme's ADR service or either of them has the option of taking the matter to the courts. The scheme will apportion the disputed amount in accordance with the ADR service's, or court's, decision.
For example, say that a tenant has paid £1000 as a deposit. At the end of the tenancy the landlord states that he wishes to retain £200 to pay for replacing damaged furniture, but the tenant disagrees claiming the property was already in that condition when he or she moved in. If the landlord only wishes to retain £200, the remainder of the deposit (£800) has therefore been agreed to belong to the tenant and should be returned to him/her. The disputed £200 will then be transferred to the scheme administrator until the dispute is settled.
Q.18 In the event of a dispute in the custodial scheme, what happens to the deposit?
A. The deposit will of course be held in the custodial scheme already. If the landlord and tenant cannot agree to the apportionment of the deposit, the disputed amount will remain in the scheme. The two parties will then either agree to use the scheme's ADR service or either of them has the option of taking the matter to the courts. The scheme will apportion the disputed amount in accordance with the ADR service's, or court's, decision.
Q.19 What happens if the landlord fails to transfer the disputed amount into the insurance-based scheme?
A. The scheme itself will pay the tenant anything due to him/her as a result of the ADR service's or court's decision and recover the money from the landlord.
Q.20 When do I get my deposit back?
A. For the custodial scheme: within 10 days of the scheme being notified of agreement between the landlord or notified of a court decision. For the insurance-based scheme: within 10 days of the tenant requesting that the landlord return his deposit or, where there is a dispute, within 10 days of the scheme being notified of the ADR service's, or court's, decision.
Q.21 Can't it be paid back before then - i.e. on the last day of the tenancy?
A. Yes. 10 days is the maximum. In practice, ODPM would like to see deposits returned more quickly and will be working with potential scheme administrators to see how this can best be achieved. Many landlords pay the deposit back on the last day of the tenancy now. If the landlord is in an insurance-based scheme, and he and the tenant agree on the amount to be returned, the deposit can be returned on the last day of the tenancy.
Q.22 If my deposit has not been protected, what protection do I have?
A. Until the deposit has been safeguarded by a scheme, the landlord is unable toregain possession of the property using the usual 'notice only grounds' for possession. Under Section 21 of the Housing Act 1988, a landlord can obtain an order for possession of an AST at any point after the first six months of the tenancy providing any fixed term has expired and the landlord gives the tenant at least two months' written notice. The landlord would need to obtain a court order to evict the tenant. The court would not grant this if the deposit had not been safeguarded.
Q.23 What happens if the landlord has not put the deposit into a scheme?
A. The tenant can apply for a court order requiring the deposit to be safeguarded or the prescribed information to be given to him. Where the court is satisfied that the landlord has failed to comply with these requirements, or is not satisfied that the deposit is being held in accordance with an authorised scheme, the court must either -
- order the landlord within 14 days of the making of the order to repay the deposit; or
- order the landlord to pay the deposit into the designated account held by the custodial scheme administrator.
The court must also order the landlord to pay to the tenant (or person who paid the deposit on his/her behalf) an amount equivalent to three times the deposit amount within 14 days of the making of the order.
Q.24 What if I move out of my home before realising my deposit hasn't been protected?
A. You will need to apply for a court order and the court will order the landlord to repay the deposit amount to you. It is in your best interests to make sure you receive the prescribed information from the landlord within 14 days of paying your deposit and check with the scheme that your deposit has been safeguarded, so that you avoid this situation.
Q.25 How will this affect deposits paid for ASTs which start before 1 October 2006 (6th April 2007) and are renewed after this date?
A. The legislation will only apply to new deposits paid on or after 1 October 2006 (now 6th April 2007). Any deposit paid before this date will not need to be safeguarded by a tenancy deposit scheme. If you decide to remain in your existing rented property beyond the initial fixed term of 6 months, how your deposit is treated will depend on how you continue your tenancy.
Where a deposit has been paid in respect of a tenancy prior to 1 October 2006 (now 6th April 2007), and at the end of the initial tenancy period of 6 months, the tenancy continues as a periodic tenancy. In that case, as no new AST will have been created, the deposit will not need to be safeguarded by a tenancy deposit scheme.
However if, at the end of the initial tenancy period of six months, instead of the tenancy continuing as a periodic tenancy, a new AST is created between the same landlord and tenant for the same property on substantially the same basis (i.e. a 'replacement tenancy'), then the initial deposit that was paid prior to 1October 2006 (now 6th April 2007) will now need to be protected and the landlord will need to safeguard it with a scheme.
Q.26 Where do these provisions leave organisations that already have voluntary schemes up and running?
A. Any private organisation was eligible, under the competitive tendering process, to submit a bid to run a scheme. We recognise the specialised knowledge that such organisations have and they were welcome to submit bids in response to the two Notices published in the Official Journal of the European Union in August 2005.
Q.27 Where does that leave voluntary schemes after 1 October 2006 (now 6th April 2007)?
A. Voluntary schemes will not be permitted to take new deposits in England and Wales from 1 October 2006 (now 6th April 2007).
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