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Can tenancy deposit cover loss of rent?
londonman81
Posts: 1,130 Forumite
I am considering letting out a property under an AST.
I have recently seen a friend go through a lot of problems with their tenants who are refusing to pay the final month of rent. My friend has issued a Section 21 (somewhat later than should have) but still stands to lose between one and four months rents (if they refuse to move out and the process goes all the way to court).
This has got me thinking, albeit very cautiously, as to how I can go about ensuring I do not fall into a similar predicament myself in the event I decide to let my property.
One idea I had was to take two months rent as a deposit in addition to the standard four weeks deposit (for any damages). This way, I can issue a Section 21 two months before the end of the contract regardless of the situation and thereby reduce the potential loss by two months. This leaves two months of potential rent loss which could then be covered by the extra 2 months deposit taken at the start of the contract.
However, given that any deposit must be held by one of the independent deposit schemes, I wanted to know whether the schemes allow for landlords to claim from the deposit for the case where tenants refuse to pay rent and stay on for the two months beyond the end of the contact until being evicted out by the court order. Or do the tenancy deposit schemes only allow a claim on the deposit by the landlord in the event of damage in the property?
If claims for loss of rent cannot be made through the schemes, is there any alternative way to protect myself against this eventuality?
Thanks!
I have recently seen a friend go through a lot of problems with their tenants who are refusing to pay the final month of rent. My friend has issued a Section 21 (somewhat later than should have) but still stands to lose between one and four months rents (if they refuse to move out and the process goes all the way to court).
This has got me thinking, albeit very cautiously, as to how I can go about ensuring I do not fall into a similar predicament myself in the event I decide to let my property.
One idea I had was to take two months rent as a deposit in addition to the standard four weeks deposit (for any damages). This way, I can issue a Section 21 two months before the end of the contract regardless of the situation and thereby reduce the potential loss by two months. This leaves two months of potential rent loss which could then be covered by the extra 2 months deposit taken at the start of the contract.
However, given that any deposit must be held by one of the independent deposit schemes, I wanted to know whether the schemes allow for landlords to claim from the deposit for the case where tenants refuse to pay rent and stay on for the two months beyond the end of the contact until being evicted out by the court order. Or do the tenancy deposit schemes only allow a claim on the deposit by the landlord in the event of damage in the property?
If claims for loss of rent cannot be made through the schemes, is there any alternative way to protect myself against this eventuality?
Thanks!
"To be ignorant of one's ignorance is the malady of the ignorant." Amos Bronson Alcott
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Comments
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I don't think it can.
You could of course take the tenants to the small claims court, but you may not win, and even if you do, you might end up being awarded £5 a week or something similar. If they don't have it, they can't give it to you.
Maybe Landlord insurance would cover this?
Essentially, you need to realise that letting out a property is a business, so comes with risk.0 -
A deposit of more than 2 months rent is defined as a 'Premium' and bestows extra rights on your tenant. Avoid.
Take a deposit of 1.5 or 2 months rent so you still have some cash value to cover damages if the tenant witholds the last months rent.
I don't understand your comments about a S21 Notice - this can be served at any time (or at least, as soon as the deposit has been registered). You do not need to wait for rent arrears.
Are you confusing with a S8 Notice?
Also don't understand your reference to 'two months rent loss'. If the tenant withholds the final months rent, it is 'one month's rent loss'.
Of course, if the tenant stops paying rent 5 months before the tenancy ends, then it is 'five months rent loss'.
As for your thread title
the answer is is yes, provided your tenancy agreement specifies this.Can tenancy deposit cover loss of rent?0 -
As for your thread title the answer is is yes, provided your tenancy agreement specifies this.
A security deposit is a security against breaches by default (ie. all breaches).
It is fine of course to explicitly list what it can be used for, but if the claim is that the deposit can only be used to cover arrears if the agreement says so, then the same goes for any and all deductions.0 -
You are right if the TA is silent.jjlandlord wrote: »A security deposit is a security against breaches by default (ie. all breaches).
It is fine of course to explicitly list what it can be used for, but if the claim is that the deposit can only be used to cover arrears if the agreement says so, then the same goes for any and all deductions.
But if the TA specifies what the deposit is for, and says it is to cover damage, then it could not be used to cover rent arrears.0 -
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londonman81 wrote: »is there any alternative way to protect myself against this eventuality?
Thanks!
Have a guarantor, tenants may well think twice about screwing over a friend/relative.ANURADHA KOIRALA ??? go on throw it in google.0
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