Proposing Tenancy Deposit Caps Doesn’t Make Sense

Updated: July 11, 2017

Last month, landlords were dealt yet another bitter blow as government proposals, announced in the Queen’s Speech, highlighted tenancy deposit caps to no more than one month’s rent in a bid to ‘make the rental market more affordable and competitive’.

Tenant signing a contract and a landlord handing keys under new tenancy deposit caps proposals.

Landlords will be banned from requesting more than 1 months’ rent under the proposed tenancy deposit caps.

Such new measures will mean that landlords will be banned from charging tenants any fees, with the exception of rent, a capped refundable tenancy deposit and capped holding deposit.

But with many landlords saying that it will reduce their appetite to accept higher risk tenants and those tenants who own pets, there is a feeling amongst the landlord community that it’s tenants who will ultimately suffer as a result of this legislation. While we accept that there are a number of rogue landlords out there in the market who abuse the current system, for the vast majority of tenants and landlords the system is working for them and introducing tenancy deposit caps simply does not make any sense.

A history prior to the proposal of tenancy deposit caps

There have been recent changes to legislation regarding deposits that have made a real difference to the system and were working for the benefit of both landlords and tenants.

Prior to the introduction of the Tenancy Deposit Protection Schemes, landlords were able to hold onto tenant deposits in their own bank account without having to register it.

The concern was that some ‘rogue’ landlords were withholding monies without the tenants’ consent and the tenant did not really have a route to be able to dispute the amount being withheld.

Then, on the 6th April 2007, the Housing Act 2004 introduced the requirement for the deposit to be registered with a legitimate deposit scheme “for the purpose of safeguarding tenancy deposits paid in connection with shorthold tenancies and facilitating the resolution of disputes arising in connection with such deposits.”

Why introduce tenancy deposit caps?

In the beginning, this was seen as additional ‘red tape’ however, we believe most parties to the tenancy would agree that having an unbiased arbitrator in a dispute can be quite helpful.

During 2015 – 2016, the TDS, an insured deposit scheme, were involved in 11,794 disputes of which just under 20% of the disputed cases were awarded to the tenant, a similar percentage awarded to the landlord and in over 60% of the cases, the award was split.

All in all, it appears the government’s initiative of introducing legislation to protect deposits and to help weed out rogue landlords withholding deposit monies has actually ‘paid off’ and we now have a pretty fair system in place to arbitrate deposit disputes…so why introduce tenancy deposit caps?

In our own survey of over 300 properties where LAP.com secures the deposit and collects and guarantee’s the rent, the average rental amount is £1235.

The average deposit amount is £1618 which is 1.3 times the first month’s rent or 5.67 week’s rent.

Why do landlords request more than one month’s rent?

From my perspective there are two key reasons:

1. To protect the landlord in the case where the tenant does not pay the last month’s rent and has damaged the property.

We’ve seen this on occasion where in a six or 12 month tenancy the tenant does not pay the last month’s rent and insists that the landlord takes the deposit in lieu of the rent.

If this is the case and the deposit amount is only one month’s rent then the landlord will be left vulnerable as there is nothing left in the deposit to cover any damages. At least with a six-week deposit, the tenant would be deterred from instructing the landlord to use the deposit as rent in the first place, but if they do, the landlord has an additional two week’s deposit to help in case of damages.

2. To protect the landlord when letting to ‘higher-risk’ tenants such as those with pets, children or tenants from overseas with no credit rating.

We encourage our landlords to let properties to tenants with pets – in most cases, these tenants stay longer and have a greater sense of duty to look after the property considering the landlord has welcomed their animals. We do however (and in most cases the tenant insists a higher deposit to ensure they can secure the property) request a larger deposit of usually six weeks. This is mostly to cover the cost of any additional cleaning required such the treating of carpets and upholstery for fleas.

Often we let properties to tenants from overseas who simply do not have a credit rating in the UK. It is almost impossible to trace down a tenant who has left the country and owes money for rent or damages – hence, to protect the landlord from the tenant absconding during or at the end of the tenancy and leaving a damages bill we recommend six – eight weeks deposit.

What happens in the case of a dispute if there is not enough deposit secured?

Let’s say the rent was £1000 and the tenancy deposit caps at £1000.  In our scenario – the tenant has left the property with £1500 of rent and damages owing. The deposit has been properly secured with a tenancy deposit protection scheme and the landlord raises a dispute. In this situation, the arbitrator finds in favour of the landlord and awards 100% of the deposit to the landlord. Great news!

However, there is still £500 worth of damages to pay for – how does the landlord get this paid?

The tenancy dispute service will only arbitrate on the full amount of the deposit (in this case £1000) – for any additional amounts outstanding, the landlord will be advised to “seek legal advice”.

So that means this landlord will then have to go through the courts or use the Money Claim online tool.

Going through the courts to claim online is a far more complex and time wasting process than using the original deposit protection system implemented by the government in the first place to help protect deposits.

It seems to me that by introducing tenancy deposit caps will only increase the number of claims made through the courts and ultimately cost more to the tax payer.

What do landlords think of tenancy deposit caps?

This week, some of our landlords have spoken out on the issue of tenancy deposit caps.   Take a read of what they have to say and let us know your thoughts:

Alan Pellowe:

An outrageous proposal by Government that again impacts on landlords, and inversely will impact on tenants, reducing the number of properties available to them if they have pets. A property should be returned to the landlord in a state very close to what it was let to the tenant in. Also deposits will reflect the value of the property and potential risk to the landlord in proceeding with the let, especially if pets are present or allowed.

Noel Andrews:

This will simply reduce my appetite to accept higher risks such as pets. No skin off my nose there’s plenty of people want my property but I feel for those normal families that want to rent with pets for normal family life.

Fran Hutchings:

Whilst I feel it unfair to take unreasonably high deposits, I think the cap on deposits should be no less than two months rent. Anything less than this would deter landlords from renting to high risk tenants and pet owners. Given the lengthy legal process required to evict a problem tenant two months deposit does at least offer some degree of protection to the landlord.

Suzy Mills:

The rental deposit should not be capped. The system is not broken, so why ‘fix’ it?’

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Proposing Tenancy Deposit Caps Doesn't Make Sense
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Proposing Tenancy Deposit Caps Doesn't Make Sense
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Tenancy deposit caps are being proposed by Government in a bid to ‘make the rental market more affordable & competitive’! Landlords are up in arms!
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LettingaProperty.com
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8 Comments

  1. Rita J August 4, 2017 at 8:52 am #

    It seems the government are determined to make life difficult for landlords and the high risk tenants will not be able to find suitable affordable housing, I take 6 weeks rent as deposit because I find some tenants don’t pay te last months rent and say take the deposit. Sometimes the tenants leave the house in a mess if the deposit is a month’s rent. One tenant left owing £800.00 knowing the deposit was the month’s rent of £700.00 he said keep the rent and I’ll pay you the £100. He left the house filthy and in need of redecorating after only renting for 6 months. The redecorating is costing me £1,000.00.




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  2. Tanja July 8, 2017 at 11:41 pm #

    The cap at 1 month rent for the deposit is too low. By simply not paying the last months rent tenants will have no incentive to clean the room or property and return the keys.
    I’m all for fairness but it’s time to stop treating landlords like criminals while bad tenants get away with all kinds. Landlords provide a valuable service to people needing to rent a home. After all the deposit is not lost, it is returned at the end of the tenancy.
    It would be more useful to cap fees that agencies are allowed to charge tenants for services that the landlord is already paying them for.




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  3. M Trivedi July 8, 2017 at 5:40 pm #

    This is another crowd pleasing move by the politicians to show solidarity with the renters. A significant minority of regular renters who know how the system works won’t pay the last month rent, period. The landlord will have to foot any remaining deficit, which in most cases is a significant amount. Besides the landlord losing out, the treasury will also have to bear the resulting loss in tax that would have been otherwise collected.




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  4. Melanie Lowndes July 8, 2017 at 3:30 pm #

    I agree with what you have said about deposits – especially what you said about tenants being tempted not to pay the last month’s rent. I generally ask for a 6 week or 1.5 month deposit. I have a 2 month deposit where the tenant offered it, wanting to secure the property in a case where I was unsure about their references.
    The deposit protection schemes work very well especially the type where I deposit the money with the scheme. It gives a feeling of security to the tenant and I find the end of tenancy negotiations are much more straightforward.
    If there is to be a cap it should be at 1.5 or 2 months but it is really unnecessary to have a cap at all in my view.




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  5. Ken July 8, 2017 at 10:23 am #

    Landlords have to seek to protect their property and resolving a bad tenancy is very expensive. Current deposit schemes provide arbitration which is often bias towards the tenant. Note to the Government, please check your facts, the current system is far from broke so don’t mess with it or you will have no private rental sector and a collapsed housing market and recession like no one has seen before.




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  6. ivor thomas July 8, 2017 at 9:16 am #

    No one has yet mentioned the fact that rogue tenants will be ‘protected’ by the Data P.Act, so all they have to do is not leaving a forwarding address. Can anyone tell me what the law abiding citizen gains from the D.P.A.? It seems to me that it only benefits those who want to take advantage of it.




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  7. Richard L Robbins July 8, 2017 at 9:11 am #

    If this is introduced (and I hope it is not), I will be looking for an insurance policy to cover damage by the tenants or their pets including failure to pay rent. The tenants will be required to bear the costs of this as a term of the tenancy.




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