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From 1st October 2006 landlords in the private rented sector are required to comply with a little known piece of legislation that will have a profound effect on the viability of the sector.
No longer will landlords or their agents be able to hold and benefit from the tenants deposit. Instead all deposits will be held by a government appointed single private company. As yet we do not know who it will be, but it adds to the bureaucracy, means additional fees and the brings the chance of being barred from their property if Landlords fail to comply.
Another nail in the coffin of the UK private rental sector?
The legislation was added by John Prescott to the 2004 Housing Act with little or no consultation. It imposes draconian measures for landlords who fail to comply. If they fail to transfer the deposits they hold within 14 days they face a fine 3 times the level of deposit held, which could be up to £6,000,
The idea has some merit, but its design and implementation are poorly thought out. The reason the ODPM (Office of the Deputy Prime Minister) gives for this major change is to protect the tenant from unscrupulous Landlords who withhold deposits for no valid reason.
However, this change does not protect the landlord from the equally unscrupulous 20% of tenants who do not pay the last 2 months rent. In fact this is specifically excluded from the legislation and the deposit holding company will not be able to take unpaid rent into account when returning deposits. If the landlord wants to recover the rent he will have to go to court.
The idea is that the landlord and tenant agree the level of deposit to be repaid and if they are unable to agree then there will be binding arbitration. Significantly landlords will also loose the right to evict the tenants until any dispute is resolved.
How much will this cost? Well the Office of Deputy Prime Minister says the size of the fee has not been set but “It should not be that much” The Times Saturday 21 January 2006.
The company chosen will be paid a fee by the landlord when they hand over the deposit and the company can siphon off a proportion of the interest earned. Then of course there is the cost of any possible arbitration.
We can already identify yet another way that landlords will be disadvantaged. Here is an example:
The tenant does not pay the last 2 months rent, and the landlord’s agent in the final inspection assesses £1,000 of cleaning and repairs. The tenant does not agree and hangs out for arbitration which takes 3 months during which they can not be evicted nor can the unpaid rent be retained from the deposit.
So, facing a 3 month loss of rent, plus £1,000 of costs, plus the costs of arbitration what option does the landlord have but to authorise the release of the deposit and avoid a dispute. Effectively legalised blackmail.
Now this legislation will only be implemented for tenancies entered into after 1st October 2006 but, with 40% of the 2.2 million tenanted properties changing occupants every year, it will affect almost every rental property within 3 years.
It is likely that this will cause a significant shift away from renting by private landlords, therefore raising rents and adding to the shortage of homes in the UK.
For more details see www.jointequity.co.uk and see how landlords can transfer their existing properties into Joint Equity and improve income and capital growth.
With Joint Equity there are:
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No rental voids,
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No maintenance costs,
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No refurbishment costs,
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No repair costs,
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No deposits and
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Significantly lower fees.
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Better annual returns
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Better capital gains for the same investment
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Joint Equity Ltd works with Mortgage Beaters Ltd to provide case studies & Illustrations to prospective Owner-Partners & Investor-Partners. Joint Equity Ltd does not carry out any regulated activities and so is not regulated by the FSA (Financial Services Authority). Joint Equity Ltd are introducer appointed representatives of Mortgage Beaters Ltd, which are authorised and regulated by the Financial Services Authority.
The content of this website is accurate to the best of our knowledge and for information only. We do not provide financial advice.
