It is being suggested that you can protect your property without taking a deposit in the following ways:-
Rent in Advance
When the tenancy deposit scheme was introduced, we advised members to consider taking rent in advance as an alternative. Communities and Local Government’s “Frequently Asked Questions” indicate that advance payment of rent is outside the statutory tenancy deposit scheme. We have previously issued advice to members to ensure that advance payment of rent is properly described as such and documented. However, it has now come to our attention that the Courts are beginning to carefully scrutinise advance payments of rent and that judges may treat it as a disguised deposit which ought to be dealt with under one of the statutory tenancy deposit schemes. This could mean that you could have to pay three times the amount penalty if you have taken advance rent, and not protected it under one of the statutory schemes should the Court decide to treat it is a deposit. Whilst the RLA still believes that an advance payment of rent is not a tenancy deposit, judges are appearing to regard it as an attempt to avoid the legislation. As a result, if you apply for possession using Section 21 against an assured shorthold tenant, at the least you could have to attend Court to explain the situation and persuade the judge that the money you received genuinely was an advance payment of rent and not a tenancy deposit. If you bring action based on rent arrears you could face a claim by the tenant that the advance payment of rent was not that at all but was a deposit. This could mean that the tenant could then try to counterclaim for the penalty to avoid rent arrears. Either way, you could face delay and anxiety in obtaining possession.
It may well be the case in time that the position is clarified in favour of the landlord. We are however, issuing a strong warning to landlords about the problems which could be encountered by you. Our advice therefore is not to take an advance payment of rent from the tenant because of the potential uncertainty and problems you might face. Another alternative to look at is taking an administration fee. This is a non returnable charge which you take for preparing the tenancy, signing the tenant up and initial administration. You could simply decide not to take a deposit. Alternatively, you can take a tenancy deposit but you must then register it under one of the schemes.
If you have already taken advance payment of rent you should seriously consider whether to protect it as a deposit under one of the Statutory Schemes. If you do decide to take this step you will need to notify the tenant(s) and give the prescribed information as well.
You are well advised, however, to satisfy yourself as to the financial status/ability to pay of the guarantor. You should also check with the guarantor’s identity.
You need to make sure that the person who actually signs the guarantee is in fact the guarantor.
This could be done by meeting the guarantor, ensuring the guarantor provides you with a proof of identity, and arranging for a third party to witness the guarantee (you should not witness the guarantee yourself because it is in your favour).
You need to use a properly drawn up Deed of Guarantee.
The guarantor does not need to be a home owner but the advantage of a guarantor who is a home owner is that you may be able to obtain a charge on his house to enforce a court judgment in the event of you having to sue the guarantor to enforce payment.
Guarantees are often used in the case of students where a parent is asked to guarantee the tenancy. For more about guarantees see Documentation.
References / Insurance
Rent Insurance is an option but someone has to pay the premium. The premium could be recharged to the tenant in this situation. The insurance company will only be able to accept suitable tenants.
When charging a tenancy administration fee, ensure you explain to the tenant precisely what it is for. We have provided a leaflet for this purpose, which can be downloaded Here
A Good Faith Deposit for the tenant to move in
A pre contract deposit (i.e. simply paid to hold the property prior to the actual tenancy agreement being entered into) is probably not caught.
A “good faith” deposit paid to ensure the tenant turns up should work so long as the tenant is not legally obliged to move into/live in the property.
As with any tenancy, unless there is a provision in the Agreement, the tenant does not have to actually use the property so long as he pays the rent etc. You could, therefore, omit any obligation in the tenancy terms to live in the property.
Other ways which have been suggested which will not work are:-
This is certainly not the case. The legislation is quite clear. If the money is paid as a deposit to secure the tenant’s obligations “under or in connection with” the tenancy then it is caught by the Scheme. The use of the works “in connection with” catches things which are related to the tenancy. Clearly, paying the utility bills is something relating to the tenancy.
! WARNING !
Landlords who try to avoid complying with the tenancy deposit scheme run the risk of penalties.
If you subscribe to a Code of Conduct then most Codes of Conduct provide that deposits much not be taken in advance of the tenancy agreement being signed up. You are reminded to check the requirements regarding deposits if you are a member of a code and you should of course comply with these.
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