How Lettings Agents Need to Be Aware of the Law Regarding Deposits

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I have a couple of family members who work in the estate agency and lettings agents business, and they often ask me for off the record legal advice when it comes to managing the properties of their tenants and various legal scenarios that come up in this profession from time to time as you can imagine.

Here’s an outline of some cursory advice that I would give to any letting agents who are either already in business of thinking about starting up. There’s also a fantastic guide on the Mint Letting Agents website which I also recommend as additional reading.

Letting Agent Deposits

It’s very common for letting agents to ask for a deposit from the new tenants. This is very normal practice and is set against any future issues that could arise – for example failure to pay rent, damage to the property, or any other breaches of the tenancy agreement. If you are a letting agent then make sure that you have this written up correctly by a professional solicitor or legal firm so that it is watertight.

What you must be aware of though is that any letting agent who takes money from a tenant as a deposit, has to place it into a deposit protection scheme – any only those that have been authorized by the government body. More information on that here. This was a rule that came into enforcement in April 2007, yet it’s surprising just how many letting agents are still not adhering to this legislation by law.

According to the Housing Act of 2004, this deposit is not the letting agents; it remains 100% the money of the person renting the property so it’s illegal to use that money for any other reasons. If there are any disputes then these will need to be referred to the Alternative Dispute Resolution services – this should always be tried before any official and costly court proceedings are considered.

Penalties for Letting Agents by Law

If the letting agent does not work to this legislation, and uses the deposit for their own means, then there are certain legal avenues that the tenant can take via a solicitor. These include items such as;

  • Landlords are not allowed to use Court Orders to gain entry or possession of the property until or unless the deposit has been properly protected using the outline guide previously referred to.
  • The full deposit will have to be returned swiftly by the letting agent or the landlord.
  • Compensation might have to be paid to the people renting your property. This can often be triple the actual deposit amount so can be quite a large compensation payment.

So to conclude, being a letting agent can be a very rewarding and fruitful career and business. However, as I’ve touched upon here, you need to be so careful when it comes to the law and your legal obligations regarding the deposit scheme. I’ve seen many letting agents fall foul of this down the years and thankfully the friends of mine running their own agency are fully aware of their responsibilities.

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