To take a deposit or not as a landlord? The choice is yours. Some landlords and agents choose to use deposit free schemes, while others prefer to take a cash deposit as they feel that if a tenant can pay the first months rent and a security deposit upfront then they must be fairly okay as they have the funds available. However, this is not always true and I have seen it backfire spectacularly, after just a few months.
The deposit free schemes work instead of the cash deposit and the tenants needs to meet the criteria of having a clear credit history, although I have seen rare incidences where people with a poor credit history have been accepted as members. The tenant's pay a membership fee to the scheme and the landlord is covered for a set period of time if the tenant defaults on the rent or fails to leave the property in a satisfactory condition. There are pros and cons to this and often tenants fail to read the small print and don't realise they are liable for any costs paid out by the insurance scheme to the landlord.
However, if you decide to proceed and take a deposit, the maximum that can be taken for a holding deposit in most cases is the equivalent of one weeks rent. There are laws around when the holding deposit can be withheld. Most agents and landlords suggest that if you have failed to declare your adverse credit history and if you change your mind at any point during the referencing process. A lot of prospective tenants pay their money but forget that you don't actually work for free and will argue about wanting it back if they pull out. I have seen a run on this over the last few months, with tenants assuring you they have a creditworthy guarantor but when you actually reference the guarantor they aren't creditworthy. The next conversation from the prospective tenant is that they want to change who their guarantor is. It is not until you take the time to explain in great detail that they only have 15 days from paying their holding deposit and to complete their application and that on day 15 this really is too late and no the landlord isn't prepared to give them extra time to complete their application. And guess what you actually completed your application form signing to say you agreed to the terms and conditions which state you have 15 days from paying your holding deposit to complete your application.
At this point they then ask for their deposit to be returned and the standard phrase recently is 'you haven't done that much work!'
When you ask for the remaining funds you ask for traditionally you ask for the first months rent upfront and the deposit. In total, legally the maximum amount of deposit you can take is 5 weeks. So you need to take of the holding deposit and work out the remaining amount. Also a note on calculating holding deposits is monthly rent x 12 divided by 52. When it comes to rents some landlord like to collect all their rents on the 1st of each month, as it helps with the tenant's finances, so it is not uncommon to need to pro-rata the rent. A rule of thumb is if they move in after the middle of the month to collect the remaining rent for that month and the full rent for the next month.
There are a number of different tenant deposit schemes authorised by the government and they offer both insured and custodial schemes. The former the landlord or agent hold the deposit, in their bank account and the later the scheme itself. As with everything relating to tenancies there are laws relating to the registering of deposits. From the payment of the deposit you have 30 days to register the deposit in one of the schemes and during this time you need to send out the prescribed information to tenants for signing.
A note on prescribed information some deposit schemes provide you with the prescribed information and you fill in the information, relating to the tenancy. While others provide you a template document which you need to customise. Unfortunately I have seen some less experienced clients not realise it is a draft document and that they need to edit it before sending it out to their tenants for signing.
We are all human and make mistakes but this can be quite a tricky one to unpick, as it doesn't look professional and reflects badly not only on them but the people supporting them. Of course if you don't know or unsure there are some great organisations around who can help you comply with all your legal obligations.
I am a specialist property virtual assistant, looking after HMOs, single lets and multi lets.