Case Study: The cost of not protecting a deposit

Case Study: The cost of not protecting a deposit

Hannah McCartan
4th November 2016

We were contacted by a landlord who had set up a tenancy on his own. The new tenants were the friends of the exiting tenants, and came with good references. He also took a guarantor for the tenancy as the couple had recently had a baby and the mother was still on maternity leave. It was agreed in principle that the rent was £500 PCM and the deposit was £500.

Three weeks before the tenancy was due to commence, the tenants paid the deposit of £500 to the landlord to secure the property. In the week before the tenancy was about to start, they claimed they were unable to to pay the first month’s rent in advance. It was agreed verbally that they could use the deposit as the first month’s rent instead, and pay instalments over the next few months to make up the deposit amount again. Three months after the tenancy began, they’d built the £500 deposit back up again, and the landlord protected it.

To complicate things further, the tenancy started with many outstanding maintenance issues. Though the landlord had made the tenants aware of the ongoing work, no set timescale had been given for when it would be completed. The tenants started to get very frustrated with the number of contractor visits and the lack of resolutions and, in some places, poor fixes, and started to threaten non-payment of rent. The landlord quickly realised he couldn’t manage the contractors and the tenants at the same time, and with the maintenance proving more serious than he initially thought, he decided it would be best to service notice on the tenants. With the property vacant, he would be able to rectify all the major maintenance issues and get the property back up to a habitable standard, and start again properly.

Given notice, the tenants decided that they would stop paying rent in lieu of the hassle and inconvenience they had suffered up to that point, and refused contractors any further access to the property. After the second month where the rent was again not paid, the landlord took legal advice to start formal proceedings for possession under Section 8 of the Housing & Tenants Act – non-payment of rent.

At this point, it became apparent that not only had the landlord not protected the tenants’ deposit within the legal timeframe, but that he had not been aware about the need to issue Prescribed Information, either.

As the landlord did not have an insurance policy to cover legal expenses or any rent guarantee cover, he needed to instruct legal representation to start the eviction process. However, upon learning that the deposit hadn’t been protected nor had the Prescribed Information been given to the tenants within the required 30 days, legal representatives wouldn’t take the case on.

The landlord had no option but to release the deposit back to the tenants (without giving a reason) and they had to accept it back before he could formally instruct the solicitors.

The landlord was £1,000 down in rent, and had been forced to release the tenants’ deposit, worth £500 which could ordinarily have contributed to the loss of rent or damage caused by tenants for not allowing contractors into the property to fix the worsening problems. He now also had the cost of instructing solicitors to serve the notice – £120.

Though the deposit had been returned to the tenants, they persisted with non-payment of rent for the third month, and continued to reside in the property past the expiry of the possession notice. The landlord could then have formally taken the tenants to court for possession (at a further cost of £728), but was advised that the tenants could make a counter claim at the hearing for compensation of up to £1,500 due to the late protection of their deposit and the missing Prescribed Information.

The total potential cost to the landlord for not starting this tenancy correctly could have exceeded £4,000;

  • Three months’ loss of rent, £1,500
  • Legal expenses, £840
  • Compensation to the tenants, £1,500
  • Damage to property (with no deposit to claim from) £500

 

Compare this to the costs of setting up a tenancy correctly with a professional letting agency like McCartan Lettings – £360 – and getting the deposit submitted for free.

To ensure your tenancy is set up correctly to avoid any costly mistakes, give us a call today on 01792 430100 to book your free market appraisal.

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