Tenancy Deposit Regulations - The Facts for Landlords

As a landlord you need to be certain about the best way to protect yourself against the financial impact of having tenants who damage your property. These can be the very people who either fail to pay all the rent they owe you, or fight to get their deposit back - even though this is required to cover the cost of damage - costing you time and money.

As you will know, since April 2007, any deposit taken from a residential tenant under an assured shorthold tenancy agreement needs to comply with new legislation.
In effect this means that any deposits taken must be placed within a government approved scheme either by placing the monies in the hands of an approved third party, or by having the deposit insured for the benefit of the tenant.

Both these can involve the landlord in administration and lead to uncertainty over the level of protection provided. This has had a significant impact on the entire buy-to-let sector, potentially reducing the attractiveness of this form of investment. There are however, a number of ways in which the burden on landlords can be managed or virtually eliminated.

Do nothing

One of these is to take no action at all; that is not to take a deposit and to rely on tenants not damaging the property. For most landlords, this is unlikely to be an attractive option.

Use a designated deposit scheme

While this appears to be the simplest solution, it does have potential drawbacks, not least of which is that these schemes either involve cost or, if free, offer no interest on the money deposited (which is how the administration is paid for). In general, they are unlikely to provide any dispute resolution service, so there could easily be additional expense when a tenant leaves, should the landlord wish to retain any of the money to make good damage.

Use a 'combined' deposit scheme

Some deposit based schemes also include dispute resolution, but these will involve fees covering both membership and a charge per letting. Several schemes are promoted by the Residential Landlords Association and can include a combination of holding deposits and insurance in order to provide maximum protection to all parties.

A dedicated tenants deposit insurance solution

An alternative which is proving increasingly attractive to many landlords is a landlords insurance. This obviates the need for a deposit to be taken while still providing full protection for the landlord for up to £1,000 worth of damage in any period of insurance (once the damage exceeds £100 in value).

In each case, a check of the tenant is undertaken by Keysafe (UK) Ltd, giving you peace of mind of knowing that you are not taking on a tenant with a poor rental history. The insurance covers damage discovered within 14 days of the end of the tenancy period and is offered in addition to most landlords insurance policies.

Costs range from as little as £42 a year; less for members of the National Federation of Residential Landlords.

As an extra to property owners insurance, some insurance brokers also offer rent guarantee insurance, at additional cost, if required. This can indemnify you should a tenant fail to pay your rent within the terms of the agreement and you are unable to recover the arrears from the deposit.

General tips

You should always make an inventory of the property before each tenancy commences, in order to help with dispute resolution. Ideally, digital photographs taken in advance will help both landlord and tenant should the need arise.

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Landlord checks

Many people with properties earn an extra income or make their income by renting out their home or establishments. The landlord usually tries to rent out their home or other establishment to known people or through people known to them in order to avoid the risk of getting tenants who may not pay the rent properly.

But, renting out the home or establishment to a known person is not always a possibility and the landlord might have to rent out their place to a person unknown to them. In such cases, it becomes necessary for the landlord to run a background check on the tenant to ascertain his credibility and the ability to bear the financial responsibility of paying the rent.

There is also the risk of the person whom the landlord wants to rent out his premises having a criminal background or being a terror suspect, etc. There are chances that the person may be a habitual sex offender. All these associated risks make it imperative for background checks by a landlord on his tenant.

Usually, such background checks for the landlord are conducted by accredited agencies that work on the guidelines from Fair Housing Laws and Fair Credit Reporting Act. As per these acts, there are certain types of landlord background checks on the tenant that require a consent to be signed by the prospective tenant before they can be conducted.

Based on data provided by the prospective tenant, the agencies will verify the information with references and also by checking various data bases. The agency will first conduct the employment verification and tenant verification by contacting the list of references provided and checks the authenticity of the information.

Once this has been completed, the agency will then continue the landlord background check on the tenant by accessing several public records such as social security number, driving motor vehicle records, etc to check the identification of the person and also to cross refer the information provided by the tenant as well as his references.

They will then conduct a search on some databases such as state or county criminal records, sex offender registers, state eviction records, etc to search whether the person has any criminal background and to ascertain whether the person has any history of violence and creating nuisance. The also access a database called the terror watch list report that has a list of terror suspects and most wanted people to eliminate the chance of the person belonging to any such lists.

If sought for, the agency conducting the landlord background check on the tenant will also run a check on credit history of the person. This is to ascertain whether the person is running any bad debts that may affect his financial standing and his capability to pay the desired rent.

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