Lifetime Deposits Sees Renewed Support From Landlords

Written By PropertyLoop
August 26, 2021

The National Residential landlords Association has moved to support the plans for lifetime deposits throughout the rental sector. This fresh support has resulted in all aspects of the rental industry from letting agents, landlords, tenants and regulatory bodies, all pushing for the government to exact the reforms to the way deposits are taken in the private rentals sector.  

The intention behind the lifetime deposit is to make moving from one rental property to another far easier for tenants, whilst still allowing landlords to have the security they expect around their buy to let investment. However, the National Residential landlords Association was cautious to also note that the widely revered upcoming changes, “must not put off landlords from making claims against tenants who leave with rent arrears or who have damaged a property. This could arise when a tenant transactions from one rental property to another, and where part or all of the deposit they paid is required to cover or is being disputed as a result of damage to a property.”

Director of Spare Room, Matt Hutchinson commented that, “deposits are one of the key pain points for rents. Having to stump up a deposit before you get your old deposit back can make the difference between being able to move and not, so the ability to pay a onetime ‘lifetime deposit’ would be incredibly welcome.”

Alicia Kennedy, Directory of tenant campaign group Generation Rent agreed with the need for reforms to be made to the current system in order to make the sector not only more accessible to new renters, but those seeking a new rental opportunity; saying, ““It is difficult to save five weeks’ rent to put down a deposit when your existing one is tied up in the current property.

“The government must also make sure the process of getting your deposit back is fair, to give renters trust in the system.”

Meanwhile the Association of Rental Letting Agents has previously commented that in order for the reforms to the tenancy deposit to be successful, they must consider landlords that need to make deductions from the deposited amount, whilst allowing the tenant to still proceed to the next property; saying, ““If the introduction of a passporting system is to be viable the Government must ensure that both the outgoing landlord’s deposit can be used if needed, whilst the incoming landlord has certainty, they will get the full deposit they have agreed with the tenant.”

However, it has been argued that such reforms will have a negligible impact to the rental sector if the government is not first able to resolve the prevalence of rouge landlords within the private rental sector. With the government launching an online database of rouge landlords in 2018, since the systems implementation despite the government itself estimating that there could be as many as 10,500 rogue landlords in England alone, only a mere 43 are listed on the database.  Local authorities possess adequate powers to issue financial penalties of up to £30,000 against landlords that are found to be in breach of current regulations, with the Financial Times finding that less than half, or 47%, of local authorities have issued these fines to rouge landlords, with a dismal 7% of local authorities serving 71% of the total issued fines to rogue landlords.

Concerns have been raised surrounding local councils ability to deal with the situation, however many argue that this is not the case as statutory provisions have increased by 40% over the last ten years, leaving landlords to comply with an eye watering 168 pieces of legislation.  What this is more likely to be is a lack of necessary funding to combat rouge landlords, something that would have been generated by the appropriate issuing of civil penalties.

What Is a Lifetime Deposit?

Lifetime deposits are an intended reform to the private rental sector that will make it far easier for tenants to transition between rental properties. Currently renters are required to provide new landlords with both a holding and tenancy deposit before they vacate their current property and receive any amounts paid towards deposits back from their original tenancy.

Originally proposed during the Queen’s speech in 2019, the lifetime deposit comes through a wave of measures called the renter’s reform bill. Simply put, the lifetime deposit initiative means that tenants will no longer be required to save for multiple deposits, instead using a singular deposit that will be transferred between tenancies, earning it the name of “deposit pass porting” and “transferable rental deposit.”

As can be expected, renters commonly struggle to save for a new deposit between tenancies. With the requirement to save for weeks’ worth of rent at a time where they are also expected to meet their current rental obligations alongside other financial commitments can sometimes be a tall order. With, tenants commonly being expected to provide their new landlords with around 5 weeks’ worth of rent for the tenancy deposit, alongside an increasing number of rental property owners asking their aspiring tenants to pay as much as six months’ rent in advance, the financial barrier presented to tenants has never been so prominent.

A survey carried out by consumer advice group “Which?” in 2018, highlighted the historical importance for reforms to the rental deposit process, after finding that 43% of renters were dependent on covering such costs through their overdrafts, loans, credit cards or borrowing from relatives and friends.

Current Deposit Procedures

Currently, although landlords are not in any way legally obliged to take a tenancy deposit from those that wish to rent their property, the overwhelming majority choose to do so, This is because any amounts taken for the tenancy deposit, or as it is occasionally referred to, the security deposit, can be used by the landlord at the end of the tenancy to recuperate any costs they have incurred repairing the property, or any rental payments the tenant may have failed to pay. These are referred to as deductions and will have to be agreed upon by both the landlords and the tenant before they are processed and the funds returned to the appropriate party. However, it is worth mentioning that the landlord will only be able to make these deductions come the close of the fixed term and once the property has undergone its final inspection, and is not able to treat the amounts taken for the tenancy deposit as a property repair fund as and when needed.

To tenants that are concerned that this will present another upfront cost to renting, you will be pleased to know that there is a limit on the amount landlords are able to take for the tenancy deposit. This threshold is established by the tenant fees act 2019 and relates to the amount of rental income a property generates in a single year. If the amount of a rent a tenant is expected to pay in one year is up to £50,000 then the landlord is only able to ask for a maximum of five weeks rent for the tenancy deposit, However, if the annual rental charge for the property is over this amount then the owner of the rental is able to request the equivalent cost of six weeks rent for the tenancy deposit.

If the owner of the rental property does take a tenancy deposit from their aspiring tenant before they move in, they have a legal responsibility to protect this amount, by entering the appropriate sums into a government approved tenancy deposit scheme. If the landlord is found to have neglected this duty and the occupants of the rental property take legal action, the landlord could be made to pay back as much as three times the original amount taken for the deposit t each tenant.  

The End to No Fault Evictions

The renters reform bill has not only set its sights on the amount a tenant must pay towards deposits before moving into a property, but also radically alter the way in which a tenant can be removed from a rental property.

The section 21 notice, or no fault eviction as it has become known, has been in the firing line from tenant campaign groups and numerous charities, condemning the measure as a leading cause of homelessness.  This is because, unlike a section 8 notice, when serving the tenant with a no fault eviction, the landlord does not need to offer any justification for their decision to issue the tenant with the order. This is because the section 21 notice is simply intended to make the landlord’s intentions clear that they wish to reclaim possession of the rental property come the close of the tenancy’s fixed period.  Again this would mean that because a specific term of the tenancy agreement has not been breached, the owner of the rental property doesn’t have to explain why they are seeking repossession. However, this is commonly used by landlords that wish to remove a tenant, yet they are close to the end of the tenancy and they are able to recuperate any losses through deductions from the tenancy deposit.

Once the landlord has served the section 21 notice, there will be a two month notice period which allows the tenant to finds alternative accommodation and prepare to vacate the property. If after this period the tenant has failed to leave the property and allow possession to return to the landlord, the owner is able to take court action to gain a possession order and reclaim the rental.

Chief Executive of Shelter, Polly Neate expressed frustration with current regulations stating that, “ For too long renters have had a bad deal, paying through the nose for neglected properties, unable to complain out of fear of revenge evictions, and always living with the threat of a sudden eviction notice landlord on the doormat.  The renters reform bull offers us a once in a generation opportunity to transform private tenting, including an end to section 21 ‘no fault’ evictions and a nation register for landlords. The government has promised a fairer deal; for renters and not it needs to deliver.”

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