Can landlords opt out of the Tenancy Deposit Scheme?

Norwich-based lawyer Tessa Shepperson answers questions about the avoiding the tenancy deposit protection scheme.

I am a landlord – I would prefer not to use the tenancy deposit protection scheme (TDPS). Can I take two months rent in advance, instead one months rent and a deposit?

Many landlords have done this and it has been recommended by some landlord organisations. The view was that so long as the landlord accepted that the money was just for rent and could not be used for damage, it was not caught. However in a recent County Court (CC) case, a Judge held that if money is paid in advance, it is a security and therefore caught by the regulations. Non payment of rent is after all one of the things a landlord will seek to deduct from a deposit if the tenant goes leaving rent arrears. Although CC cases are not binding on future claims, landlords are advised not to do this in future. They may be making themselves vulnerable to a claim by tenants for the ‘fine’ of three times the deposit sum, for non compliance.

Is taking a guarantee a good alternative?

If the guarantee is offered under one of the Local Authority bond schemes or similar, then yes, this is an excellent alternative. As no money is paid it is not caught by the scheme. As regards taking a guarantee from a third party such as a relative, this also will not be caught. However make sure you reference the guarantor carefully. Remember that if the guarantor fails to pay, you will need to get a CCJ and if they still fail to pay you will have to enforce this through the courts which can be difficult and expensive. My advice is that a guarantee should be used as well as a deposit (e.g. for tenants without a job, such as students) not instead of a deposit.

Are there any other alternatives?

There are some insurance based options. Here provided the tenant satisfies the insurers referencing, and a modest fee is paid, cover is given for loss and damage often in excess of the normal deposit money taken. The problem is that these policies are not available for the tenants where you are most likely to need them. On the other hand, if the tenant passes the insurers referencing, this is a positive point for them. Examples of companies providing this are www.iguarantee.co.uk and www.landlords1stop.com. Your own insurer may also be able to provide something similar, particularly if they specialise in landlords insurance. However the general view is that taking a guarantee is good because the prospect of losing it is a powerful incentive to the tenant

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to look after the property. On the whole other solutions tend to have problems of their own, which is why so many landlords and agents continue to take tenancy deposits despite the TDPS.

Tessa Shepperson is a solicitor, and author, and editor of the Landlord-Law web-site at www.landlordlaw.co.uk.

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