The accidental landlord: register deposits or pay shedload of compensation

Rental property deposits are a vexed topic for many a tenant, but landlords can also lose out financially, warns Victoria Whitlock

£530 a week: this spacious first-floor one-bedroom flat is available to rent in Prince Albert Road, Primrose Hill, NW1, opposite Regent's Park. Through John D Wood.

This week I have been nagging my friend to register his new tenant's deposit. And now I have had to tell him that if he doesn't do it within the next three days, he risks falling foul of the law. It could end up with him being forced to pay his tenant a shedload of compensation. He keeps saying: "Yeah, yeah, don't worry." But I AM worried.

It has been a legal requirement since April 2007 for landlords to register any deposits within 30 days of receiving the cash. These days, however, it's really vital not to let it slip your mind, as tenants are being encouraged to make claims against those who fail to comply with the law.

It's also vitally important to provide your tenant with all the correct paperwork from the outset. If you don't, you could still end up having to compensate them - even though you have registered their deposit and kept it safe.

Since the law regarding deposits was tightened up in May 2012, nasty firms have spotted an opportunity to make money out of dopey  landlords by offering to fight tenants' claims for compensation on a no-win, no-fee basis.

Quite right, you might be thinking - except these legal parasites are encouraging tenants to take action against landlords who have protected deposits, if they think there's a chance they might have slipped up in not providing all the correct paperwork.

They are even pursuing landlords who have already returned deposits to tenants who've left properties since May 2012 if they believe they weren't given all the right bits of paper for the deposit at the start of the tenancy. One firm boasts on its website of a 92 per cent success rate. In some cases, tenants will have received up to three times the amount of their deposit in compensation.

So, what should you do to avoid falling prey to bloodsuckers? First, register the deposit with one of four government-approved schemes within 30 days of receiving the cash. Secondly, you must send your tenant a copy of the Deposit Protection Certificate - which must be signed by you - together with a leaflet providing details of the deposit protection scheme and how they should go about getting their deposit returned at the end of the tenancy.

You also need to provide tenants with something called Prescribed Information, and it is this last bit that landlords might overlook because this is information that is specific to each tenancy and not all of it will be included on the certificate.

Prescribed Information includes such things as contact details for every tenant (including phone numbers, email addresses and an alternative postal address where they can be reached at the end of the tenancy), and reasons why the deposit might be withheld at the end of the tenancy.

For this latter part you can refer the tenant to specific clauses in the tenancy agreement, if you've issued one, otherwise you'll have to list all the reasons why they might forfeit their deposit.

Further details are available from each deposit protection scheme. If you don't follow the process precisely, not only do you risk a compensation claim from your tenants, you also won't be able to issue a Section 21 notice to evict them if they break their lease  agreement.

Landlords, you have been warned. Don't give these greedy ambulance chasers a bumper new year.

Follow our accidental landlord on Twitter at @VicWhitlock

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