This month, I want to revisit a case study from a few years ago to highlight the importance of protecting a tenants deposit correctly and the financial consequences of failing to do so.
Adherence to security deposit law directly affects your ability as a landlord to regain possession of your property. With 6 month notice periods confirmed as being permanent in Wales now, there has never been a more important time to make sure your tenancies are set up correctly – or to work with a lettings professional such as myself!
We were contacted by a landlord a few years ago 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 one of the parents was thus on leave. It was agreed in principle that the rent was £500pcm, and the security deposit was £500.
Three weeks before the tenancy was due to commence, the tenants paid the security deposit 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 security deposit as the first month’s rent instead, and pay instalments over the next few months to make up the security deposit amount again. Three months after the tenancy began, they’d built the £500 security 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 (at the time, notice periods were 2 months’). 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 because of the hassle and inconvenience they had suffered up to that point, and refused further access to the property for the contractors trying to resolve/complete repairs. 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 on grounds of non-payment of rent.
At this point, it became apparent that not only had the landlord not protected the tenants’ security 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 security 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’ security deposit which could ordinarily have contributed to the loss of rent or damage caused by tenants by them refusing access to the contractors to fix the worsening problems. He now also had the cost of instructing solicitors to serve the notice – an additional £120.
Though the security deposit had been returned to the tenants, they persisted with non-payment of rent for a 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 (3 times the security deposit value) 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
Thankfully, we were able to negotiate with the tenants for them to vacate and the landlord was able to regain possession of his property without the need for a court order. However, had he not been working with an experienced and best practice agency like ourselves, then the outcome could have been more serious for him.
If this happened today with a 6-month notice period on a Section 21 Notice, and factoring in the possibly that tenants could be in the middle of a COVID-19 necessitated rent repayment plan when relations start to go sour, the cost to the landlord could easily increase.
Testimonial from the Landlord
“The best estate agent service!! When I handed over my house to them, we had terrible tenants who were not paying rent and refused to leave but Hannah managed the process REALLY well and got the tenants out and introduced really good tenants who ended up staying with us for over 4 years!! Very easy to work with. The entire team is very professional and kind!! I wish them all the best!! Compare this to the costs of setting up a tenancy correctly with a Best Practice letting agency like McCartan Lettings and getting the deposit submitted correctly.”
If you’re worried you might have made the same mistake as this landlord, don’t bury your head in the sand. To ensure your tenancy is set up correctly to avoid any costly mistakes, give us a call today on 01792 430100 or book your free 15 minute consultation here.