What do you do if your tenant only pays part of his deposit? This is a question I have been asked several times. Often tenants cannot afford to pay the whole sum in one go and ask their landlord if they can pay by installments. Sometimes landlords, wanting to be reasonable, will agree to this.
But this is a mistake.
The rules say that the money must be protected within 14 days after receipt. This does not change just because you have not got the whole deposit sum. You must protect the money you have. So how does this work out with the three schemes?
Using the DPS
For a start, if you use the DPS you will have to make up the difference in the deposit amount yourself and then collect it from the tenant. This is what the DPS say on their webs-site FAQ:
If deposits are being secured with The DPS they must be for the full amount as stated in the contract (AST). If you are accepting the deposit in instalments from the tenant, then you should either submit the entire deposit yourself and recover it from the tenant over the course of the tenancy or use one of the insurance schemes.
Stop Press – this situation has now changed and the DPS CAN accept deposits by instalments.
My deposits make it very clear in their terms and conditions that landlords must protect deposit money within 14 days and failure to do this will put your membership of the scheme at risk. If you are going to change the amount – ie if you get paid more deposit money later, the rules have this to say about it:
Any change to the amount of the Protected Deposit will require the original Deposit to be Un-Protected and a new Protection to be purchased.
So firstly this will involve you in a lot of administration (which presumably you won’t want). Secondly it could prove expensive as protecting a deposit will cost £30 (or £17.50 for deposits of under £300 where the deposit is protected online).
The TDS scheme run by the Dispute Service operates differently. Here the member pays an annual fee and all the deposits held by the agent (the vast majority of TDS members are agents) are then protected.
However I don’t think that this will make it any easier for agents to accept deposits by installments as the agent must record data on the TDS database within 14 days of receipt of the deposit, and this information includes the total value of the deposit and the date on which deposit is paid to the Member.
The rules allow the member to record changes in the tenancy on the TDS database but these do not appear to include a change in the deposit amount (eg by the tenant paying a bit more of the agreed deposit sum).
If anyone has any further information about how TDS treats partial payment of deposits please can you put this in a comment?
It looks therefore, as if the only way you can accept partial deposits is either if you are prepared to pay the full amount yourself and then get this repaid by the tenant, or if you use My Deposits and are willing to protect and re-protect at £30/£17.50 a time.
The naughty option
There is always of course the option to refrain from protecting the deposit at all until it is all paid. If you do this, you will have to use the DPS as failing to protect within the 14 day time limit will get you into problems under the rules of both My Deposits and TDS.
As the law seems to stand at the moment, per the case of Tiensia v. Vision Enterprises Ltd, a landlord can protect a deposit very late (even up to the day before a court hearing) and avoid having to pay the penalty payment of three times the deposit sum.
So at present this is an option available to you. But …
Why its best to obey the law
The penalty award of three times the tenancy deposit sum is not the only penalty for non protection of the deposit set out in the regulations. Unless you protect your deposit you cannot serve a valid section 21 notice or evict your tenant using the no fault ground in section 21.
Also our present understanding of the law is per the Court of Appeal decision in the Tiensia case. It is always possible that this decision will be overturned by another case on similar facts being decided in a different way by the Supreme Court. There are several cases working their way up the system which could eventually reach the Supreme Court on this point.
Then landlords who have not protected, might suddenly find that they are vulnerable to a claim by their tenants for the penalty, with no defence available to them.
Even worse – if the dissenting Judgment of Lord Justice Sedley is upheld (discussed in my blog post), landlords who have not protected within the time limit may also find that they are permanently locked out of being able to recover possession under section 21.
There is also the likelihood that changes to the regulations will be brought in under the Localism Bill. We don’t know what those changes are going to be at the moment, and hopefully they will not be retrospective, but all in all, landlords are best advised to be compliant now. Then they will not have any problems.
So how do you deal with a tenant who can’t afford to pay the whole deposit and wants to pay by installments?