An agent has said that the rules on what happens to existing deposits when the fees ban comes in – in just over a fortnight – are unclear.
Paul Emery of Invicta, in Faversham, Kent, has complained to the Deposit Protection Service where he uses its custodial scheme to protect deposits.
His concern is over the incoming cap of five weeks’ rent for deposits – and how this cap will apply when existing tenancies, where larger deposits have already been taken, come up for renewal.
Emery said he has been advised by DPS to release every tenant’s deposit balance that is over five weeks.
However, Emery said this solution would mean that some tenants not renewing would have their deposits released now.
He says he has been told that the only other option is to release the full deposit when the tenancy renews, and then invoice the tenant for a deposit equivalent to five weeks of rent.
Emery said that this runs the risk of the original deposit having been released, but with no guarantee that the tenants will pay the new sum.
Emery said: “The DPS should be releasing the balances, but only as and when the tenancies are renewed.
“Why are they keen to release deposit balances all in one go and right now?
“In reality we need to be dealing with renewals now, as by the time the tenants sign the new AST it will be after June 1.”
A spokesperson for DPS told EYE that it was sorry for any confusion.
The spokesperson said: “In order to comply with the legislation, landlords and letting agents must ensure all new deposits from June 1 are no larger than the equivalent of five weeks’ rent (or six if the annual rental amount is £50k or more).
“They must also reduce existing deposits in line with the legislation whenever these tenancies are renewed on a fixed-term basis from June 1.
“The DPS Deposit Cap Calculator is a one-off process which can help agents and landlords identify which of their deposits are over the cap.
“It’s up to them whether they then ask us to amend every deposit that exceeds the limit in one go or individually as and when required.
“Deposits do not need to be repaid in full and re-submitted, and the process will be in place indefinitely.
“We’re sorry for any confusion on this. We’re going to get in touch with the letting agent concerned so we can go over what’s involved with them and work out how we can best help.”
We also asked ARLA for advice and were told that all three of the authorised deposit schemes are treating the issue in different ways.
CEO David Cox told us: “This is a DPS-specific scenario and related to how they are dealing with the deposit cap. All three schemes are dealing with it slightly differently.
“In terms of the Tenant Fees Act itself, existing deposits will only need to go down to the deposit cap if the tenancy is renewed.
“If the tenancy drops on to either a contractual or statutory periodic, this is classed as a continuation of the existing tenancy (for Tenant Fees Act purposes) and therefore the landlord/agent does not need to do anything and can continue holding the existing deposit until the tenancy comes to its natural conclusion or is subsequently renewed later down the line.
“If a tenancy renews, landlords/agents have 28 calendar days from the date the renewal tenancy is signed and dated to return anything in excess of the cap.
“For clarity, the 31 May 2020 backstop date that applies to fees on existing tenancies does not apply to deposits.”
EYE was also asked yesterday if agents can continue to take large amounts of rent in advance – for example, six months’ payment for the entire tenancy.
Cox said: “This question stems from the part of the ban that says agents are not allowed to ask for a higher rent in one rental period than in any other.
“In turn, this then produces the question about whether an agent can take rent in advance as technically they would be taking a very large month one rental period and then nothing for the following five rental periods (if using six months’ rent in advance as an example).
“The answer is that under the Tenant Fees Act this is fine provided that the monetary value of the six month rent in advance is exactly the same as if the tenant had paid it on a monthly basis (i.e. the agent isn’t charging a premium for taking the rent in advance).”
Comments (19)
What about if the deposit was in excess of 5 weeks but subsequent rent increases have either reduced the excess or indeed wiped it out completely? Asking for a friend.
It’s based on the actual rent.
And still nothing from DPS? …..
DPS are a nightmare. We’ve asked them 3 times how we release the balance over the max deposit for our June renewals. They simply won’t answer our question. They just keep asking us to complete a spreadsheet for our deposits and send it in. We just want to deal with then on an individual basis and already know how many of our deposits eceed the max. Still no clarification and a repeat stock answer!
Good morning,
TDS have developed an automated solution to repaying deposits which are in excess of the cap – it can all be done at the click of a button allowing you to repay each individual deposit as and when you need to.
Feel free to contact our switch team if you’d like to learn more.
Michael
It’s a nighmare!- and I don’t know whether I just have a blind spot about this, but the biggest problem I’m having with this (and it’s one of many issues), is how we deal with pet deposits.
If you’ve taken a pet deposit previously (and assured the landlord of this) do we now have to give the pet deposit back? Do we increase the rent to value of the pet deposit for a fixed period? Does the increase of the rent to cover a pet constitute a new agreement? What if the landlord comes after the agent at the end of the tenancy to ask who’s going to pay for carpet fumigation as per the conditions upon which the tenancy was agreed in the first place?
Even with new tenancies I’m struggling to figure how we deal with pets on the contract.
Nightmare!!
Hi Dash94,
TDS have released some guidance today which includes a section on pets and how best to approach the matter going forward. The guidance is available at depositcap.com under the ‘Guidance documents’ tab.
Michael
Thanks Michael – I’m a DPS user, but that’s helpful thanks.
You’re welcome. Hope you find the guidance useful and feel free to contact our switch team if you’d like to know more about TDS.
Michael
The deposit amount forms part of any existing T/A, so logic would suggest that the deposit amount held and the amount recorded in the agreement should tally? Otherwise you have an invalid contract situation..
Until 31 May 2020 of course!
What a mess..
It’s tricky.
I have been told by one person that we will need to return any deposit over 5 weeks rent either when it renews, or by 31st May 2020.
I have been told by another that as long as the Tenancy is not renewed, we can keep the deposit as it is, and return/stop as normal during checkout procedures. Being as my minimum deposit is 6 weeks rent, with an extra £150 for pets, this is all of my properties! The Government need to publish a statement stating in clear, plain terms what is to be done.
Literally;
Deposits paid in excess of 5 weeks rent must have the excess amount returned when the tenancy is renewed or has a new Tenant added after June 1st 2019. Tenancies that move or continue on a periodic or rolling basis must have/do not have to have the excess returned after 31st May 2020 unless the Tenancy is renewed, a new Tenant is added or the Tenancy is brought to an end.
Hi CountryLass, Any excess deposit above the cap needs to be returned only when the tenancy is renewed or a new tenancy is entered into post 1 June 2019. If the tenancy falls into a statutory periodic, you do not need to do anything.
The date of 31st May 2020 is the end of the transitional period and has an effect on whether a tenant is obliged to make payments under their contract which are now prohibited by the Act. However, you do not need to return any deposit over the cap by this date for on-going tenancies as long as they were entered into pre June 1 2019.
If you want any further information, we’ve launched depositcap.com which has our latest guidance.
Do you mean like the statement on page 30 of https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/791273/TFA_Guidance_for_LandlordsAgents.pdf
Q. If a tenant paid a tenancy deposit which exceeds the cap before 1 June 2019, do I need to re-pay the amount of the deposit above the cap?
No. Landlords and letting agents are not obliged to immediately refund part of a tenancy deposit that is above the cap but was paid before 1 June 2019. If a tenant signed a tenancy agreement before 1 June 2019 (and that tenancy is continuing or is a statutory periodic agreement) then the tenant will be bound by the terms of that contract until it is either renewed or terminated.
That’s what I thought! But then the trainer was telling me that it had to be returned even if the tenancy was not renewed.
My understanding is that the deposit will be limited to 5 weeks if:
1 A new tenancy is created from 1st June 2019
2 A new written tenancy is entered into as a renewal between 1st June 2019 and 31st May 2020
3 As from 1st June 2020, no deposits should be held in excess of 5 weeks, so any excess deposit in existing contracts will need to be refunded and any tenants fees in existing contracts at that date will be disregarded
So, you have a 1 year window to get the paperwork into line! This will not be too onerous on the insured based schemes, but I am not sure how DPS will deal with it – perhaps if enough questions are asked of them, they will offer some guidance.
Hi KC54,
You’re correct in point 1 and 2 that the deposit will be limited to 5, or 6, weeks’ rent (depending on the annual rent) for new tenancies created from 1 June 2019. However, you do not need to return any deposit above the cap from 1 June 2020.
The transitional period of 1 June 2019 – 31 May 2020 applies more to the clauses which require payments from the tenant which are prohibited under the legislation. From 1 June 2020, all clauses in on-going agreements which require a prohibited payment from the tenant become void. However, an agent/landlord does not need to return a deposit above the cap on 1 June 2020 if the tenancy has not been renewed or entered into since before 1 June 2019.
TDS have launched depositcap.com which contains guidance and details on the legislation.
Michael
I fully accept the MHCLG guidance says they don’t think you have to refund a deposit in excess of the cap, unless you grant a new tenancy. They also said statutory periodic tenancies did not need to comply with deposit protection till Superstrike happens.
The only answer, for me, is to look at what the law says in section 30, the transitional provisions. In 30(5) and 30(9), talking about agreements that do not have to comply on the 1 June 2019, it is referring to what happens at the end of May 2020 and it says that if that provision in the agreement would be banned in an agreement created after the fee ban then “that provisions ceases to be binding” This would apply to a long fixed term, or periodic from day one, that was still running (30(3)) or a statutory periodic (30(4)). I see no reference in these sub sections limiting it to payments. 30(3) says: Subsections (5) and (6) apply in relation to a provision of a tenancy agreement entered into before the coming into force of section 1 if, had the agreement been entered into after that time, that section would have applied in relation to the provision or a requirement imposed pursuant to it.
I cannot reconcile “that provision ceases to be binding” with you don’t need to do anything. The risk is that if the provision (that clause) is not binding then surely you have not right to be holding any deposit at all?
What I would suggest is that as there is an element of question on this I would communicate with landlords as I don’t want a situation where the tenant leaves with rent arrears and damages, totalling over 5 weeks’ rent and he then sues the agent for having given back money “that did not need to be refunded”. Yes you are there to protect the landlord but cover your own back too.
IMHO, I would just return anything over either five or six weeks in terms of deposit value at the earliest opportunity.
The last thing you want is to serve a section 21 notice, go to court, and have a judge/the defence question why you hold a deposit more than allowed under the TFA.
For me, the job of an agent is to protect the landlord, and remove/minimise risk at all opportunities.
Then you don’t understand the law, leave it to an agent that does.