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UK Landlords face big fines for not registering deposits by June 23rd
Thousands of landlords with long-standing tenants could face a £3,600 shock penalty unless they register deposits by this summer.
The Government is running a 90-day amnesty for buy-to-let investors who have yet to put their tenants' deposits into an official scheme.
Fines for not registering by the June 23 deadline are unlimited and worked out at three times the initial deposit; the average sum tenants put down before moving in is £1,200.
It is thought that up one in three of the 1.5 million private landlords in England and Wales are not registered with a deposit protection service despite legislation enforced in 2007.
Not all of these landlords fall under the scope of the legislation; for example, university lets and licence agreements, an arrangement different to a tenancy that includes lodgers, are excluded.
Any landlord with an "assured short hold tenancy" agreement must register with one of three Government-backed schemes, although Scottish landlords aren't covered by the legislation.
Hefty penalties aside, landlords who fail to register will also be left powerless if they want a tenant to leave at the end of their contract, because in the event of a dispute the landlord will be seen to have failed their obligations.
Landlords who have had tenants for several years, where the agreement keeps rolling over, are those most likely to be caught, says Emma Humphreys, of solicitors Charles Russell Speechly.
"These landlords may not use a letting agent, which would notify them of the need to register deposits, and may not have been keeping an eye out for the regulations when they were introduced in 2007," she said.
"Of course, there is no excuse for new landlords not complying with the law. But many long-term buy-to-lets where the tenant and landlord have a good relationship may not realise they need to register with a scheme."
Such landlords may be unaware that they need to register deposits and may not even have taken a deposit in the first place.
Rules regulating deposits changed in 2007, when buy-to-let purchases reached an all-time high
Deposit protection was set up as a compulsory scheme eight years ago to mediate disputes at the end of the tenancy.
When introduced in April 2007, it was unclear if landlords with existing tenants would also need to register, but a court later decided that all tenants – including those who had moved in before this date – should have their deposits protected.
The court ruled in 2013 that tenant Marino Rodrigues, who had moved in a few months before the law came into force, could not be told to move out when his tenancy ended, because the landlord had failed to register his deposit.
The new amnesty – which began on March 26 under the new Deregulation Act – will simplify the "muddied" obligations of landlords, said Richard Lambert, of the National Landlords Association.
"There are now a large number of deposits that need protecting despite not previously needing to be, and it’s likely that many landlords won’t even be aware of what they need to do," he said.
"Landlords who still hold a deposit should protect it if they haven't already done so, which will ensure that you can legally regain possession of a property [if you need to]."
Do I need to register a deposit – and how?
Most buy-to-let properties have an "assured short hold tenancy" contract in place, which means the landlord must protect the tenancy deposit in a Government-approved scheme. There are certain exceptions, for example a university hall of residence or a lodger renting a room in the landlord's home.
Landlords have thirty days from receiving the deposit to register with either the Deposit Protection Service, MyDeposits or the Tenancy Deposit Scheme. Separate schemes apply in Scotland and Northern Ireland.
In the case of a dispute between landlord and tenant, the deposit will be protected in the scheme until the issue is sorted out.
The Deposit Protection Service is free to use, although landlords will not hold the money (and therefore earn no interest), while MyDeposits lets landlords hold on to the money, but costs up to £24 per deposit, with a standard joining fee of £20.
The Tenancy Deposit Scheme is free to sign up to and costs up to £21.95 per deposit. Landlords can keep the deposit during the tenancy.