I do not take a damage deposit from my tenants.

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    I do not take a damage deposit from my tenants.

    I wonder if someone can help me please. In one of my properties, same tenants have been there for the 3rd year now. When they first came to me, they only had enough to pay me as one month in advance and were not in a position to afford a six weeks rent as a deposit. They are a Polish family and the man had done some work for me in my other properties before asking me if I could let him a place for his family. From dealing with him then, I knew that he and his family are very genuine and nice people.

    I do ask for a 6 weeks rent as a damage deposit on my other properties but in this case, I waived the rule. So instead of asking them for a month in advance and 6 weeks as a damage deposit, I got them to agree to a £1,430 rent per month instead of £1,300 per month, ie 10% more every month. And if at the end of the 12 months AST, everything was left as it should be, I would pay them back, what was paid by them as extra rent of £1,560 as a cashback payment.

    It has worked very well for the last two years and we have nothing but praise for each other. They pay the rent on time, keep the property spotless, cause no problems and even asked me this year to buy them some paint and they painted the whole place free of charge. I was thinking of increasing the rent at the start of the 3rd year but then thought better not to loose good tenants like this for the sake of £20/week, hence the rent is still the same as it was in June 2004.

    Even though they can now afford to pay me a deposit but I really see no need for it as they trust me and I trust them and the system of them paying 10% more every month and then getting a cashback at the end of 12 months has worked very well with both sides.

    They have already indicated that when the 3rd year finishes, they will like to renew it for the 4th year. And would you believe that they have told me that they were expecting me to increase the rent last year, but if I wanted to increase it this year, it will be OK by them.

    Now that the new deposit scheme is coming into effect from April Next Year. I am wondering if I am required by law to hold deposits for the tenancy into the Tenancy Deposit Protection Scheme.

    Will my tenants and I be doing anything wrong or illegal the way we are doing business with each other? Could there be any objections by the Government bodies about me not taking a deposit from my tenants at the start of the tenancy but taking a 10% extra rent every month and then paying it back as a cashback at the end of 12 months!

    Any advice on this will be most appericiated.

    #2
    Deposits

    This is an interesting point.
    When the new legislation on deposits comes in on the Desposit Scheme next year landlords who let their own properties (agents have their own schemes)will have some choices:
    (1) Go with the deposit scheme - the custodial scheme - the money is lodged with a third party provider appointed by government - I hear yesterday these contacts have been approved now.
    (2) Go with the insurance scheme (if the landlord in question can get cover - not all landlords will get approval for this) - here the money stays with the landlord as before, unless there's a dispute.
    (3) Take no deposit.
    (4) Come up with an alternative to a deposit as this question suggests, but the question will be: it this legal?
    The main problem for landlords with the deposit schemes, as I see it, is that if things go wrong, if the scheme is not followed to the letter, the landlord loses his or her right to re-possession!
    Some may see this as a risk not worth taking, so decide not to take a deposit at all.
    In fact deposits don't always give the landlord as much security as one would imagine, as it's so easy for tenants to cancel their last month's rent payment and effectively, use up their deposit as rent. The landlord is powerless to prevent this.
    If there's no damage or outstanding payments then there's no problem. However, where there is damage, the landlord is then in the position of having to "build a good case" and chase the money, through the Small Claims Court if necessary.
    So in effect, having taken a deposit, the landlord is in no different a position than if he had not taken a deposit!
    The alternative to this - not taking a deposit - is to come up with some other alternative such as the one suggested above. The landlord takes a higher rent and then provides a bonus payback if the property is handed back in A1 condition. But under the legislation, is this a legitimate process or is it a deposit by other means?
    What are your thoughts on this?
    More information and useful contacts regarding the Deposit Scheme in our September 2006 Newsletter:
    http://www.landlordzone.co.uk/BlogNe...er-archive.htm

    Comment


      #3
      The main problem Isee with this alternative and innovative way of collecting a deposit, is with HB Claimants. HB will only pay the rent element according to the Rent Officer assessment, and many an HB Claimant will be on other benefits so will not be able to make the "top up" payment.

      And from what I can gather, one of the reasons that LL's don't like HB claimants (correct me if I'm wrong) is because they seem to have less care and consideration for the property and are more likely to cause damage.

      So the resultant problem would be that LL's steer even further away from taking on HB claimants than they do presently - which in turn will put more strain on the already overstretched Social Housing available.
      Any information or opinion given in this post is based only on my personal experience, what I have learned from this, other boards and elsewhere. It is not to be relied on. Definitive advice is only available from a Solicitor or other appropriately qualified person. E&OE

      Comment


        #4
        Well the other problem I see is if the tenant moves in with this agreement and pays (or not) one month rent and then stops paying altogether.
        You then have no rent coming in and no deposit if they trash the place.

        It's fine with good tenants but with bad tenants it would be a disaster and they're the tenants you're most likely to need the deposit for.

        Comment


          #5
          Exactly my point regarding HB tenants (generally- there are exceptions to every rule)

          Originally posted by Jennifer_M View Post

          It's fine with good tenants but with bad tenants it would be a disaster and they're the tenants you're most likely to need the deposit for.
          Any information or opinion given in this post is based only on my personal experience, what I have learned from this, other boards and elsewhere. It is not to be relied on. Definitive advice is only available from a Solicitor or other appropriately qualified person. E&OE

          Comment


            #6
            Originally posted by Wickerman
            On a similar note, an agent local to us managing approx 200 properties appears to have [alledgedly] dissapeared, Seems deposits have not been returned, the university has suspended their membership in their code of conduct etc.

            It does put the landlord[s] in a terrible position [eg, owing deposits to landlords, when not in receipt of it, loss of rent due to it being paid by the tenants to the agent etc], one that perhaps a TDS/insurance backed scheme could have partially averted. Certainly the agent should have client money insurance however not sure what the implications are if the agent [hypothetically, alledgedly etc] does a runner.

            Purely hypothetically if the last months rent and deposit (on average about 1k per house) were withheld from the agent, it could be 400k+ being retained by the agent. Some of these houses were 6 tenants plus so could be looking at a stackload more, especially if the tenants were paying 3 monthly etc.
            I agree. L should check carefully before appointing an agent and avoid agent holding funds without remitting at once to L.
            JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
            1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
            2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
            3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
            4. *- Contact info: click on my name (blue-highlight link).

            Comment


              #7
              Originally posted by Jennifer_M View Post
              Well the other problem I see is if the tenant moves in with this agreement and pays (or not) one month rent and then stops paying altogether.
              You then have no rent coming in and no deposit if they trash the place.

              It's fine with good tenants but with bad tenants it would be a disaster and they're the tenants you're most likely to need the deposit for.
              Thank you for all your responses but I would still like to know what my legal position will be as a landlord if I were to grant my tenants another year's AST exactly on the same basis as I did for the last 3 contracts so far.

              As a matter of fact they love it when I give them their money back as a cashback of £1.560 at the end of the 12 months contract. They use the cashback money to go home to Poland on holidays. But if I were to ask them for a 5 - 6 weeks deposit up front before signing a new AST in June 2007, I am sure it will be difficult for them to go on holidays in the summer.

              I would only do it this way for someone whom I like and have found to be reliable and trustworthy. Otherwise, I know it is important to take a deposit up front from most tenants.

              Comment


                #8
                The trouble is you can't trust anyone in property.

                Many people have "agreements" with friends/family/people they like who rent their property and all is well until the said friend changes and it all becomes a nightmare.
                In all honesty, what would happen if you granted your tenant another 12 months AST and refunded the deposit and from then on they stopped paying the rent and litteraly trashed the property before flying off to Poland?

                It's hard now that you and they are used to the way your agreement works to change things. They probably bank on their refund every 12 months to go on holidays

                Comment


                  #9
                  Everything is a risk. It is unlikely that these tenants who have been good for some time will now turn bad. I think this is an excellent idea and very innovative! How about asking them if you can retain 2 month's rent (or more) up front before refunding the rest? Given the history I would take the chance. I do not see how this could be illegal in any way. 2 people have agreed something between them - I do not think the law could interfere!
                  Unshackled by the chains of idle vanity, A modest manatee, that's me

                  Comment


                    #10
                    Jennifer

                    I see what you are saying, yes, what will happen if I refunded the deposit, signed a new AST and a month later they staopped paying and trashed the place. It would be a nightmare offcourse.

                    But my answer to that is that the people I am letting my property to are tried and tested tenants.

                    I have faith in them that they will do no such thing. I know they will handover the property to me in a better condition then it was handed to them, whenever they go.

                    They have faith in me that at the end of 12 months they will get their extra rent paid back as cashback to them. They like it because they know that they can trust their Landlord. They know, I am not going to do the same to them what Fairpack did to thousands of people.

                    I trust them so much that if I was told that by charging them 10% extra every month and then paying it back at the end of the AST as cashback was not legal, I would rather not take any deposits up front. I know deposit or no deposit, if there is any damage at the end of the tenancy, they will put it right without me asking him.

                    So, please tell me what is my legal position, can I carry on this way or not?

                    Comment


                      #11
                      The legislation is planned to commence on 6 April 2007.

                      Make no mistake. When the Tenancy Deposit Protection scheme becomes law, deposits taken at that time must be held through the custodial scheme or the insurance-based scheme. Anything else will be a contravention of the law.

                      You will be breaking the law if you try to dress up a deposit taken on or after 6 April 2007 as a larger rent with cashback at the end. Period.

                      The legislation will only apply to new deposits paid for ASTs entered into on or after 6 April 2007. Any deposit paid before this date will not need to be safeguarded by a tenancy deposit scheme. Hope this is clear.

                      Take a look at the Communities and Local Government explanation.

                      Comment


                        #12
                        Originally posted by Poppy View Post
                        The legislation is planned to commence on 6 April 2007.

                        Make no mistake. When the Tenancy Deposit Protection scheme becomes law, deposits taken at that time must be held through the custodial scheme or the insurance-based scheme. Anything else will be a contravention of the law.

                        You will be breaking the law if you try to dress up a deposit taken on or after 6 April 2007 as a larger rent with cashback at the end. Period.

                        The legislation will only apply to new deposits paid for ASTs entered into on or after 6 April 2007. Any deposit paid before this date will not need to be safeguarded by a tenancy deposit scheme. Hope this is clear.


                        Take a look at the Communities and Local Government explanation.
                        ...or forget deposits, with all that hassle, and switch to insrance against tenant default. Try MARAS.
                        JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                        1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                        2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                        3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                        4. *- Contact info: click on my name (blue-highlight link).

                        Comment

                        Latest Activity

                        Collapse

                        • Reply to Electrical Safety Certificate EICR
                          by DPT57
                          The presence of a plastic consumer unit cover would normally be a c3 hazard, but I understand it could be higher if there are other related risks, such as where there is older wiring or poor bonding. In the end I beleive we will either have to become electrical experts ourselves or find trustworthy...
                          03-06-2020, 17:14 PM
                        • Electrical Safety Certificate EICR
                          by Ozzie11
                          Hi

                          I noticed a new law means landlords need to arrange an EICR for new tenancies after July 2020 or before April 2021.

                          Please can I get some advice on this? I started a tenancy in May 2020 - this is due to expire in November 2020. However it is likely the tenancy will be renewed...
                          01-06-2020, 10:42 AM
                        • Reply to Can I Stay in the Property to Make Repairs?
                          by jpkeates
                          The guidance says that preparing a property for rent or sale is work that is allowed to be done in this phase of the lockdown.
                          And staying in another property for work is allowed.

                          So travelling somewhere to work and staying there overnight is fine.
                          03-06-2020, 17:04 PM
                        • Can I Stay in the Property to Make Repairs?
                          by DJVera
                          Hi all - I'm new to this so apologies if this (or similar) has been dealt with somewhere else!
                          I own a property in the south west but currently live in London. I've been renting the property out privately. My last tenant moved out in January 2020 and I was planning to get quite a bit of (much needed)
                          ...
                          01-06-2020, 13:38 PM
                        • Reply to Can I Stay in the Property to Make Repairs?
                          by DPT57
                          Yes, I agree about the acting reasonably and interestingly the legislation seems to allow for this too through the use of the word "include"

                          For the purposes of paragraph (1), the circumstances in which a person (“P”) has a reasonable excuse include cases where....
                          03-06-2020, 17:00 PM
                        • Reply to My tenant lied to me
                          by Uklondoner
                          The rent has to be two months or more in arrears? My case the tenant owe me less than two months can still do the form?...
                          03-06-2020, 16:50 PM
                        • My tenant lied to me
                          by Uklondoner
                          My tenant lied to me saying he missed the first universal credit payment. But actually according to one of my friend the payment normally only take two weeks to come directly to the bank account. What can I do? Can I find a way to let the universal credit directly make overdue rent payment? I really...
                          03-06-2020, 09:54 AM
                        • Reply to My tenant lied to me
                          by theartfullodger
                          As a stupid landlord I take grave exception to your slur, Sir!

                          Next week, amazing, unexpected, revelations that from time2time landlords lie to tenants.............. and agents from time2time lie to landlords AND tenants... and MPs & a particular special adviser seem to lie to most...
                          03-06-2020, 16:22 PM
                        • Reply to Access to sheds
                          by DPT57
                          Possibly, although I was basing my comment on this phrase in the original post:...
                          03-06-2020, 16:21 PM
                        • Access to sheds
                          by endymion
                          Hi. We have been renting a flat for the past decade under an Assured Shorthold Tenancy. The flat is one of five in a single block. The back garden contains a large outbuilding comprising ten sheds. Implicitly, then, two sheds per flat. The inventory does contain the wording 'Garages, Sheds, Outbuildings:'...
                          03-06-2020, 10:09 AM
                        Working...
                        X