Big changes are afoot for private landlords – with tough new rules being introduced around tenancy deposits.
The Government has introduced the Tenancy Deposit Scheme Regulations, which sees landlords compelled to pay any deposit taken from tenants into an approved scheme rather than holding onto the cash themselves, or via their letting agents.
At the time of writing, companies wanting to administer the scheme in Scotland are soon to be appointed and at that point the new regulations will come into force.
The new regulations, provided for by the Housing (Scotland) Act 2006, apply to all landlords other than local authorities or registered social landlords.
It will see many letting agencies and landlords – some of whom view the deposits as part of turnover – forced to not only change the way they operate, but also find what could be substantial sums of money relatively quickly.
Landlords will have a duty, within 30 days of a new tenancy being created, to pay any deposit into the approved scheme and to supply the tenant with information regarding the scheme.
For existing tenancies, landlords have to comply within three months of the scheme becoming operational. For some letting agencies with hundreds of tenancies on their books, that could mean finding six figure sums.
At the end of the tenancy, either the landlord or tenant can ask the scheme to repay the deposit to them. The scheme must notify the other party (landlord or tenant) and seek their agreement to release the funds.
If there is no dispute, the funds are all released. If there is partial dispute, the appropriate proportion of the funds can be released – for example if a tenant agrees that a specific item can be paid from the deposit.
Any proportion of the deposit in dispute will be held by the scheme pending the outcome of the dispute resolution. This dispute resolution mechanism must be put in place by the companies that operate the scheme, and must be free to both landlord and tenant.
This is funded, along with the administration of the scheme, from the interest made on the deposits. No interest is payable to the tenant or to the landlord.
Landlords who fail to comply with the new regulations will face financial penalties ordered by the Sheriff Court.
The starting point for landlords must be to examine their lease – the foundation of the agreement between the two parties.
This should clearly set out what the deposit can be used for. It may seem obvious but there are subtleties that may escape even experienced landlords.
Landlords should also consider revisiting their lease to deal with other important issues.
For example the lease should cover the grounds for recovery of possession so that all the mechanisms for recovery are available.
Landlords are well advised to act early when rent arrears become a problem. A tenant who starts by defaulting or paying late often continues if the issue is not addressed early, and resolution can take longer and cost more if left unchecked.
Letting agents in addition to revisiting their leases should also be making changes to their Terms of Business so that they now properly provide for the new tenancy deposit regulations.
If you would like to discuss any of the issues raised in this article please get in touch with either Amy Dickson or Paul Harper on 01835 862 391.