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Update to Holding Deposit Law

Update to Holding Deposit Law

Hannah McCartan
28th February 2020

Further changes to the way Welsh Landlords operate are to be rolled out on Friday 28th February 2020 – today.

The new legislation relates to holding deposits, and will especially impact landlords who source their own tenants through sites such as Facebook and Gumtree.

Whilst it might seem like a cheaper alternative to instructing a professional agent, the cost of this new piece of legislation could be financially devastating.

Before a Holding Deposit can be taken

In September 2019, the Welsh Government imposed restrictions on the fees a landlord and letting agent can charge tenants. Application fees were banned, and replaced with a refundable holding deposit, capped at 1 week’s rent.

Under the new legislation, prospective tenants will need to be provided with certain information by their landlord before a holding deposit can be taken.

The Renting Homes (Fees etc.) (Specified Information) (Wales) Regulations 2019 were originally due to come into force on 13th December 2019. It was delayed for revisions after the Residential Landlord Association (RLA) raised concerns about some of the information the Welsh Government wanted landlords to provide, which included a landlord’s home addresses.

Thankfully, the Welsh Government listened, and amended the Regulations before setting the new implementation date.

Prescribed Information for Holding Deposits

The Regulations state that the following information must be provided to a prospective contract-holder (tenant):

  • amount of holding deposit
  • address of the dwelling in respect of which the deposit is paid
  • where a holding deposit is to be paid to a letting agent, the name and contact details of that letting agent,
  • where a holding deposit is to be paid to a landlord, the name and contact details of that landlord,
  • duration of the contract,
  • proposed occupation date,
  • amount of rent or other consideration,
  • rental period,
  • any proposed additional contract terms or proposed modifications to fundamental or supplementary terms or terms proposed to be omitted from the contract,
  • amount of any security deposit,
  • whether a guarantor is required and, if so, any relevant conditions, (l) reference checks the landlord (or letting agent) will undertake, and (m) information the landlord or letting agent requires from the prospective contract-holder.

This information must be given to a prospective tenant in writing, either (printed and handed to them) in person or electronically (via email).

After the RLA raised concerns, the Regulations were changed to specify that although contact details must be provided, the tenant won’t need the landlord’s details if a managing agent has been appointed. The managing agent’s contact details can be provided instead.

A private landlord could use a business address instead of a home address.

Get your evidence in writing

Although a holding deposit would ordinarily be refundable, there are circumstances under which it can be retained.

If the information provided by the prospective tenant for their tenancy application is incorrect, misleading, or fraudulent, and thus the tenancy isn’t granted, the holding deposit could be retained.

Landlords in Wales must have provided a prospective tenant with the prescribed information to be able to retain the holding deposit, so landlords and letting agents who do this will need to protect themselves by making sure they have evidence they’ve done so in writing.

It is important that a landlord/letting agent can provide evidence that supports their case for retaining the holding deposit, too. You will need to show you have asked the relevant questions and gathered the relevant information, so documentation such as credit checks and/or proof of earnings will be crucial.

Repaying the Holding Deposit

In Wales, a holding deposit must be repaid to the tenant within 15 calendar days of the date it was paid. This can be extended as long as both the landlord and the tenant agree to the extension in writing.

If both parties do not agree to enter into a tenancy, the deposit must be repaid within seven days of the Deadline for Agreement, whether that is 15 calendar days from receipt, or another date as previously agreed (always in writing).

The other circumstance in which a landlord can retain (and not repay) the holding deposit is if it will be put towards the first month’s rent or security deposit. If this is the case, this should be made clear to the tenant at the start of the application process.

What is the Tenant Fee Ban in Wales?

As previously mentioned, the Welsh Government imposed restrictions on the fees a landlord and letting agent can charge tenants. These restrictions were known colloquially as the Tenant Fee Ban.

Read more about the Renting Homes (Fees etc.) (Holding Deposit) (Specified Information) (Wales) Regulations 2019 in this Explanatory Memorandum.

The Welsh Government has also produced guidance on the Tenant Fee Ban, which can be read online here.

In England, the Tenant Fees Act came into force for new tenancies on 1st June 2019, and is due to be extended to apply to all existing tenancies from June this year (2020).

How to calculate a holding deposit

Just to make things more confusing, although holding deposits for English and Welsh lets are capped at 1 week’s rent, the method for calculating that figure is different between the two countries.

Many Welsh landlords are under the impression that in order to calculate the holding deposit, they multiply the monthly rent by 12 (to work out the annual rent), then divide by 52 (for weeks in the year).

However, the correct method to calculate a holding deposit for a property in Wales is to divide the monthly rent by 4.35.

For example: the landlord of a property in England let at £1000pcm could take a maximum holding deposit of £230.77. The landlord of a property in Wales also let at £1000pcm could take a maximum holding deposit of £229.88.

Although subtle, Welsh landlords need to be very aware of the difference. If the English calculation is used by mistake, a Welsh landlords could find themselves in breach of the law by overcharging.

The fines for breaches are uncapped. Taking that extra £1 could prove to be a massively costly mistake.

This is yet another hoop for Welsh landlords to jump through. It’s very easy to get it wrong and open yourself up potentially devastating financial consequences.

Tenancy Health Check

If you are unsure about any of the legislation affecting you as a landlord in Wales, please don’t worry; book your property/portfolio booked in for a free tenancy health check today and start making changes to ensure your interests are protected and your liabilities met.

Click here to book, and I’ll give you a call to discuss.

Want to discuss these changes, and other concerns you have as a landlord with other Swansea landlords? Join our Swansea Landlord Circle Facebook Group.

 

Source: RLA

Related: Lettings Update 2020 / Landlord Laws Up 32% in Past Decade

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