Landlords risking big fines by holding tenant deposits

Many could face hefty penalty for failing to safeguard tenants’ deposits properly.

Nearly 300,000 landlords in the UK are risking an average £2,400 fine for failing to place tenant deposits into an approved Government-backed scheme, according to a new report.

Those flouting the rules may be sitting on £514 million worth of unprotected renter deposits, research by the Centre of Economic Business Research (Cebr) for money.co.uk has found.

It’s thought rogue landlords could be earning a total of around £8.5 million a year in interest on deposits that should be safeguarded by a third party scheme.

What is deposit protection?

Since April 2007 landlords have been legally required to put the deposit they take for assured shorthold tenancies (how most properties in the UK are rented out) into a Government-backed tenancy deposit protection (TDP) scheme.

In England and Wales the deposit can be registered with one of three approved schemes; Deposit Protection Service, My Deposits or the Tenancy Deposit Scheme (TDS).  There are different approved schemes for both Scotland and Northern Ireland but they operate in a similar way.

This should be done within 30 days of receipt (14 days in Northern Ireland) and landlords are expected to give tenants detailed information about where their deposit is protected and how to raise a dispute.

The rules were introduced to protect renters from rogue landlords unfairly retaining or docking deposits for things like wear and tear or pre-existing damage, once a tenant leaves.

The TDP schemes give both renters and landlords access to a free dispute resolution service, which can step in when things go wrong and decide what's fair, saving the hassle of going through court.

Rogue landlords

But landlords have been slow to comply with the rules. Analysis by Tenancy Deposit Service (TDS) and the Cebr indicates just a third of landlords were compliant by 2008, rising steadily to 72% by 2013.

Source: Cebr and TDS analysis

*Cebr projected compliance rate based on average growth rate of previous two years.

There are around 1.9 million landlords in the UK. Based on recent trends the Cebr projects the compliance rate in 2015 was around 85%. That means 15%, or roughly 284,000 landlords, are still failing to protect deposits properly and risk being fined.

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Who can be fined?

Since 23 June 2015 all landlords can be fined for failing to protect tenants’ deposits by not registering deposits in a TDP – even those that took them in before the law changed in April 2007.

So those who have had tenants for several years – where the agreement has kept rolling over – are the most likely to be caught out. These landlords may not have been aware they needed to register deposits.

The fines can be up to three times the initial deposit taken.

The Cebr estimates that on average landlords took £795 from renters in 2015 as a deposit. In this case they could be exposed to a penalty of up to £2,400.

However, compliance with the rules is not being monitored effectively and it’s tenants that must take legal action against rogue landlords that don't protect their money properly.

What to do if you’re not protected

If your landlord fails to protect your deposit and give you the information about which scheme your money has gone into within 30 days, you can take legal action.

You can apply to a county court using part eight of the Civil Procedure Rules if you live in England and Wales, raise a complaint via the Sheriff Court in Scotland, or via Environmental Health in Northern Ireland.

You can take your landlord to court to make a claim before or after your tenancy has ended. You may incur legal costs but these could be claimed back if you are successful.

Read: How to get your deposit back for more.

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