5 Weeks Rent as Deposit

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    5 Weeks Rent as Deposit

    Just had an "interesting" conversation with some landlords and agents about the deposit being limited to 5 week's rent.

    I had pretty much assumed that everyone would work this out the same way I had done - which was monthly rent x 12, divided by 52, then times 5.

    Everyone else I discussed this with worked the way that they used to work out a deposit based on 6 week's rent i.e. monthly rent divided by 4 times 5 (used to be 6).
    With a rent of £800 a month, that's a difference of about £70, but the figure that they would get would always be higher than my calculation.

    Having thought about it since, there's a third way to calculate it (rent *12 / 365 * 35)* which produces an even lower figure.
    * which is basically the rent * 1.15

    I'm tempted to go for the lowest possible figure (or switch to making the deposit equal a month's rent for simplicity).

    How would you work it out?
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    #2
    5 weeks is hardly worth it. Take zero weeks, and increase the rent by about 5%-10%. If they are decent tenants then maybe don't increase the rent again at renewal.

    Comment


      #3
      Originally posted by AndrewDod View Post
      5 weeks is hardly worth it. Take zero weeks, and increase the rent by about 5%-10%. If they are decent tenants then maybe don't increase the rent again at renewal.
      Just had a perfect end of tenancy experience with a couple of small agreed deductions, no big dispute, everyone happy.

      I am not able to increase my rents 5-10% (otherwise I would!), I am not the only person letting property in the area and I get close to the top of the going market rate.
      10% on most of my rents would mean competing with properties with an additional bedroom (and that's not going to happen).

      I don't renew tenancies, they all go periodic, so not increasing them next renewal as "compensation" isn't an option.
      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

      Comment


        #4
        Originally posted by jpkeates View Post
        How would you work it out?
        As per the government guidance;

        https://assets.publishing.service.go...nce_190722.pdf

        The level of tenancy deposit you can ask a tenant to pay depends on the total annual rent for the property. • If the total annual rent for the property is less than £50,000, the maximum tenancy deposit you can ask a tenant to pay is up to five weeks’ rent.

        • If the total annual rent for the property is £50,000 or above, the maximum tenancy deposit you can ask a tenant to pay is up to six weeks’ rent.

        You can calculate the total annual rent using one of the following formulae:
        • total monthly rent x 12
        • total weekly rent x 52

        You can calculate the total weekly rent using one of the following formulae:
        • (your monthly rent x 12) ÷ 52
        • your annual rent ÷ 52

        Comment


          #5
          Originally posted by jpkeates View Post

          I am not able to increase my rents 5-10% (otherwise I would!), I am not the only person letting property in the area and I get close to the top of the going market rate.
          10% on most of my rents would mean competing with properties with an additional bedroom (and that's not going to happen).
          Yet agents are able to talk tenants into paying 5% extra for a 'no deposit option' that just pays for the landlord to sue them? I think we are missing a trick here guys. I'd be happy not to sue anyone and have the 5% paid straight to me.

          Comment


            #6
            In accordance with the Act.

            http://www.legislation.gov.uk/ukpga/...raph/2/enacted: “one week’s rent” means the amount of the annual rent payable in respect of the tenancy immediately after its grant, renewal or continuance divided by 52.

            So rent*12/52*5 rounded down to nearest penny. then round down to whole pound.
            Originally posted by jpkeates View Post

            Everyone else I discussed this with worked the way that they used to work out a deposit based on 6 week's rent i.e. monthly rent divided by 4 times 5 (used to be 6).
            That means they are taking more than allowed, so open to penalty charge.

            Comment


              #7
              Originally posted by JK0 View Post

              Yet agents are able to talk tenants into paying 5% extra for a 'no deposit option' that just pays for the landlord to sue them? I think we are missing a trick here guys. I'd be happy not to sue anyone and have the 5% paid straight to me.
              My tenants have been quite happy to pay 5-10% extra (versus the "market") with no deposit, and a verbal promise that if the place is well cared for the rent will not increase (or might even decrease) when it goes periodic.

              When I charge top-notch rent I always explain why I have to do that.

              Comment


                #8
                You certainly must not promise to reduce the rent. I would need to read the wording again to decide whether you could actually reduce the rent. The use of an increased initial rent is specifically outlawed.

                Comment


                  #9
                  Originally posted by leaseholder64 View Post
                  You certainly must not promise to reduce the rent. I would need to read the wording again to decide whether you could actually reduce the rent. The use of an increased initial rent is specifically outlawed.
                  Interested to know more about that. Where does it say I cannot reduce the rent on tenancy renewal (a different contract) or when it becomes periodic, or say that I might be willing to do so, or even promise to do so?

                  It seems totally sensible to reduce rent when an unknown tenant transforms into a known low-risk entity. Or buys in bulk.

                  Comment


                    #10
                    To add to the above, I agree there is a risk if landlords take an increased sum earlier and ‘hold over’ a sum towards rent payment in the last month, AND link that promise into something akin to the deposit --- because then this would constitute holding funds as ‘security’ - i.e a deposit.

                    But decreasing rent later - or promising to do so at the end of a contractual period has no elements at all of the above. It is part of an ongoing tenancy, not termination. It is not linked to anything other than a re-evaluation of risk. Money collected earlier is not returned later (changing the terms of a deal is not a return of cash already paid - what is paid is paid). If the tenant decides not to renew at all, they would not benefit at all. I cannot see how this has any element of being a deposit.

                    Indeed it would be totally unjust if any law decreed that I was not allowed to reduce a charge if the risk reduced.

                    Comment


                      #11
                      It already does stop you reducing for reduced risk, if you let the tenancy go periodic. One of the risks is that the tenant leaves before you have fully recouped your setup costs.

                      I'd also argue that a promise in terms of any continuation means the continuation is part of the original agreement.

                      Comment


                        #12
                        The wording in the legislation is pretty opaque.

                        It says that it isn't allowed for rent in a period to be less than the rent in an earlier period.
                        But then says this is allowed if there's a a term in the tenancy agreement which enables the rent under the tenancy to be increased or reduced depending on "the circumstances" or if the landlord and tenant agree,

                        Presumably the intention is to stop the landlord having the tenancy agreement with a rent of £X, but actually demanding more than X from the tenant for some months (presumably to cover initial costs).

                        But it's remarkably hard to read (even for legislation).
                        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                        Comment


                          #13
                          This is all new to me. I'll tell my tenants that I would love to reduce your rent as you are great tenants, but the government says I have to charge you more. Sorry......

                          Not following the below part anyway. There is no legislation that I know of that says that you cannot change the rate of rent rent when it goes periodic. You can do this either by notice or agreement, and there is nothing that one cannot agree a negative change.

                          Originally posted by leaseholder64 View Post
                          It already does stop you reducing for reduced risk, if you let the tenancy go periodic. One of the risks is that the tenant leaves before you have fully recouped your setup costs.

                          Comment


                            #14
                            http://www.legislation.gov.uk/ukpga/...raph/1/enacted says
                            • you cannot contract for a reduced rent less than 1 year after start of the tenancy ((2) & (8))
                            • you can agree a reduced rent for later in the tenancy once the agreement has been made ((6)(b))
                            • a new tenancy can have whatever rent you agree (but I am not sure about a spt because that is required to be on the same terms as the original)
                            • you can agree in the contract to reduce rent one year or more after the start of the tenancy ((8))
                            Oral agreement is probably subject to the above terms, but para (6)(a) probably allows something like "if all payments are on time and T has not damaged property and T is not a pain in the arse, then rent will reduce to X from month Y".

                            Comment


                              #15
                              Well, we used to charge 6 weeks generally as a deposit (all my rents are under £50K per annum).

                              This change to charging a maximum of 5 weeks' rent does slightly increase risk of being out of pocket in the event of a lot of damage to the property, and taken together with the other higher level of regulations that have been imposed on landlords in recent years, has already led to us to increase rents for new rentals and for renewals too.

                              Compared to 11 years ago, when the first edition of my book came out, I would say that our rents are now at least 10% higher due to the higher tax and admin burden we now face.

                              Comment

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