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Protecting student deposits

student-depositsAnyone living in a university city will be aware of the yearly transition of first year students from halls of residence to privately rented accommodation for the remainder of their studies. Not surprisingly, my office receives an increased level of complaints from students and landlords several months after this transition occurs on the top of protecting student deposits.

Christopher Hamer

Christopher Hamer

The current trend is for tenancies to be agreed months in advance of the start date, often with significant sums taken upfront to reserve properties, as students want to secure a property for the next academic year prior to their end of year exams. In the past, under the previous tenancy deposit protection arrangements, where a security deposit was taken, the agent had been able to retain these monies before registering them shortly after the commencement of the tenancy. However, the Localism Act, which came into force on 6 April, changed Tenancy Deposit Protection legislation and now the deposit holder has a 30 day period to register it with a tenancy deposit scheme and provide the prescribed information effective from the date those monies are received. This is an absolute time limit which allows the tenant to make a claim, if needed, 31 days after payment regardless of whether the requirements relating to deposit protection have been met.

The penalties for not registering the deposit and providing the prescribed information can be severe; the tenant can claim (eg for non-registration) against the deposit holder for its return in full and the Court can impose a penalty of between one and three times the deposit. The tenant can also make a claim even after the tenancy has ended. Aside from any claim, failure to meet the deposit registration requirements also gives rise to other problems such as compromising the serving of Section 21 notices. Whether or not an agent has been instructed to register the deposit, it is in their and their landlord client’s interest to ensure that the tenants’ money is registered as required by law.

For agents that deal with student accommodation, the Localism Act means that they if they request payment of the security deposit months before the tenancystart date they must ensure that those monies are registered and the prescribed information issued within 30 days of receiving that payment.

Holding deposits and advanced rental payments are not deemed as tenancy deposits simply because those monies are not taken as security against a tenant related obligation contained within the tenancy agreement (other than the requirement to pay rent in the agreed manner). However, Paragraph 6g of the TPO Code of Practice for Residential Letting Agents places the obligation on them to provide tenants with written terms and conditions relating to these payments, prior to or at the point of payment. Whilst I do not consider it a matter of best practice for advance rent to be taken where the tenancy won’t begin for months, if holding deposits are requested, the agent must take steps to ensure that the potential tenants fully understand the terms of the payment. Students’ circumstances can change, they may reassess accommodation needs, by ensuring that written terms and conditions are provided, disputes can be avoided.

Students will most likely have a low credit rating and are often expected to provide guarantors to underwrite rent arrears/damages. Where the tenancy agreement makes the tenants jointly and severally liable, the agent should inform all potential guarantors that they may be held accountable for rent arrears/damage, regardless of which tenant failed to pay or caused the damage. This is especially vital when only one parent acts as guarantor.

I have received a number of complaints from parents who alleged that the agent led them to believe that they were only guaranteeing their own offspring’s performance under the tenancy agreement when this was not legally the case. Often the parent has been presented with a bill for damages and/or unpaid rent relating to one of their offspring’s housemates. In this event I will consider whether the agent took the appropriate steps to make the guarantor fully aware of the extent of their liability.

I also expect agents to advise landlords of the need to comply with safety legislation and regulations, and to verify the validity of the necessary certificates provided by the landlord. Agents should also draw the landlord’s attention to any obvious maintenance issues prior to a tenancy commencing (Paragraph 2f of the Code of Practice) and be aware of local authority’s licensing requirements in relation to Houses of Multiple Occupancy (HMO).

Finally, if the students do not wish to renew the tenancy agents should ascertain whether the landlord wishes them to find new tenants (Paragraph 10k of the TPO Code of Practice). Whilst this may sound obvious, the landlord’s instructions should not be assumed. Indeed, it is within the agent’s interest to obtain the appropriate written instructions prior to remarketing the property

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