Tenancy Deposits: What Should Landlords Do?

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The RLA’s advice

• If you take only smaller value deposits, especially if you do not take very many of them over a year, then you should stop taking tenancy deposits and look at alternatives. 
• If you take larger value deposits or a large number of deposits, then you should look at joining an insurance backed scheme.

For example -  if you use borrowed money to run your letting business then at current borrowing rates (say 2% over bank base rate of 5.25%) with a premium of £30 as offered by one of the tenancy deposit insurance schemes you will need to hold a deposit of at least £400 for a year; otherwise, the premium you pay will be more than the interest saved. 

If you operate in credit then with a savings rate of 5% (on a high interest account) you will have to take a deposit of at least £600 for a year to avoid the premium of £30 being more than the loss of interest on your savings account.

• In between these two situations the RLA advice is to seriously consider the custodial scheme.  The custodial scheme costs you nothing in financial terms.

Other matters to consider are tenant’s wishes and the ability to use the deposit (but this will not apply to the Dispute Resolution Service scheme where you must have a separate client account).  If you are able to return the deposit quickly at the end of the tenancy because you had it, this will please tenants. 

Your bargaining position over tenancy deposit disagreements could be helped if you are holding the tenancy deposit yourself.

The Importance of Inventories

Under the new scheme if you want use the deposit to meet damage claims, it will in practice be essential to have a proper inventory/schedule of condition both at the beginning and end of the tenancy. 

Otherwise, the tenant is likely to be given the whole deposit back.  Landlords will have to ensure that proper procedures are put in place.

Data Protection Concerns

Concerns have been raised that having to register a tenancy deposit through any of the schemes will mean that the Government Agencies, particularly the Inland Revenue, may be able to obtain access to the records if they consider there has been tax evasion. 

Although we are assured that appropriate data protection measures are in place, the Inland Revenue has recently achieved a notable success in accessing details relating to foreign bank accounts as part of its measures to counteract tax evasion. Undoubtedly, the Government will be able to obtain some valuable data relating to the private rented sector from tenancy deposit information.

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