The Problem of Security Deposit Caps

moneyhouse1Plans announced by the government to cap security deposits for tenants in the Autumn Budget 2016 have raised concerns of higher rates and an increase in rental disputes from the National Landlords Association.

The cap, which was originally set at four weeks’ rent , was amended to six weeks’ after the NLA lobbied the Government during the consultation period.

The NLA has previously argued that imposing an arbitrary cap on security deposits would have unintended consequences such as decreasing the housing supply to certain groups of tenants, as well as leaving tenants with smaller deposits when moving on to other properties.

There is also the risk that if security deposits are capped at one month’s rent, tenants will view the deposit as the last month’s rent, leaving landlords with no protection against property damage at the end of a tenancy.

Adding to the concern over the effect of security deposit caps, Emma Glencross, Chairperson of the Association of Independent Inventory Checks argues:

“We hope the lower sums involved don’t encourage renters to take less care of their rental properties. This government initiative could, in some cases, have unintended consequences”.

Analysis of similar measures imposed in Scotland of a maximum cap of two months’ deposit have seen additional fees put on to tenants, with rent increases in Scotland averaging 4.4% a year on the average two bed property, the highest annual increase since 2010.

This rate of increase in rents has led the Scottish government to consider rent cap policies to mitigate the increase such as the establishment of rent pressure zones in Glasgow, giving the Scottish government the power to cap rises at the consumer price index (CPI) plus 1% for up to 5 years.

The new Scottish Labour leader Richard Leonard has also proposed a ‘Mary Barbour’ law, a private member’s bill that utilises a points based system linked to average wages to enforce fairer rents.

The main measures contained in the draft Tenant Fees Bill will:

• Ban letting agents or landlords from charging fees for the granting, renewal or continuation of a tenancy.
• Cap holding deposits at no more than one week’s rent and security deposits at no more than 6 weeks’ rent. The draft bill also sets out the proposed requirements on landlords and agents to return a holding deposit to a tenant.
• Create a civil offence with a fine of £5,000 for an initial breach of the ban on letting agent fees and a criminal offence where a person has been fined or convicted of the same offence within the last 5 years. Civil penalties of up to £30,000 can be issued as an alternative to prosecution.
• Require Trading Standards to enforce the ban and to make provision for tenants to be able to recover unlawfully charged fees.
• Appoint a lead enforcement authority in the lettings sector.
• Amend the Consumer Rights Act 2015 to specify that the letting agent transparency requirements should apply to property portals such as Rightmove and Zoopla.

The NLA argues that there are legitimate reasons a landlord seeks a security deposit, namely to protect themselves against the financial risk that property damage or rent arrears could cause. An Our recent NLA quarterly survey panel found that almost a third (32%) of landlords had experienced property damage due to a tenant in the last 12 months. This was higher for LHA claimants (53%) and recipients of other benefits (56%).

Will the government address these concerns?

In reaction to the concern expressed by industry bodies, the government is also constructing a response to its consultation on making membership of client money protection schemes mandatory for letting and managing agents that handle client money, with feedback expected to be published shortly.

This entry was posted in Blog, deposits, Fees, Politics, scotland. Bookmark the permalink.

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