Protecting your contract holder's deposit

At the start of June, new rules were introduced which reduce the amount of deposit a landlord can request from their contract holders.  It is limited to five weeks’ rent on rents up to £50,000 a year.  If the annual rental payments exceed £50,000 then a landlord may ask for a deposit equal to six weeks’ rent.

This rule is for new contracts, taken out before 1st June 2019, and they also apply to contracts which are renewed on a fixed term. This means when a fixed term contract ends, and both the contract holder and landlord agree to a further fixed term contract, then any deposit held in excess of the new five or six weeks’ rent rule must be returned.

What is a fixed term contract?

At the end of the initial rental period some contracts roll into a periodic contract. Meanwhile, in some circumstances, landlords may choose to renew the contract for a new fixed term.

 

How to calculate the maximum deposit

In most cases, rents are charged on a ‘calendar month’ basis.  This makes it a little more complicated when it comes to calculating the maximum amount of deposit you can take.

Steps:

  1. Multiply the Calendar Monthly Rental by 12 – giving the annual rent
  2. Divide the total by 52 – giving a weekly rent
  3. If the total annual rent was above £50,000 then multiply the weekly figure by six; or if the total rent is below £50,000 then the weekly figure should be multiplied by five

Where deposits must be held

There are three deposit protection services available for landlords: Deposit Protection Service; My Deposits and Contract Deposit Scheme. 

A landlord must protect the contract holder deposit within 30 days of receiving it from a contract holder – and crucially, he or she must advise the contract holder where it is being held.  If a landlord fails to do this, then a contract holder can instigate legal proceedings against their landlord. In certain cases, failing to secure a deposit in one of the three schemes could prevent a landlord from evicting a contract holder under the Section 21 notice process.

At the end of the contract, the contract deposit service will act as an arbitrator and ascertain whether the landlord has the right to withhold any of the deposit.  Reasons why a landlord may want to retain some or all of the deposit is if the contract holder has damaged the property – and the landlord needs to, for example, replace a carpet before the property can be re-let.  Should the contract holder leave with any arrears, then the deposit can also be used against those arrears.

When the contract holder and landlord have agreed how much deposit is to be returned, then the landlord must do this within ten days.

If you have any questions about protecting a contract holder's deposit, please speak to your local Darlows branch.