If you rent out a property on an assured short hold tenancy, you’ll ask your tenant to pay a deposit to cover the cost of any damage that occurs while they’re in possession of the property. These bonds for rental properties remain the tenant’s money throughout the term of the lease, unless it needs to be called upon to fix some damages, and the sum they deposit must be protected through a Government-backed deposit scheme.
There are two types of deposit protection schemes for you to choose from when it comes to bonds for rental properties. You can select either a custodial scheme or an insurance-based scheme. You will need to pass on certain information to your tenant within 30 days of the day they paid the bond. This prescribed information includes:
If you fail to give your tenant this information, they can apply at country court to have the deposit either returned to them or protected under one of the schemes. The court may also order you to pay compensation of up to three times the value of the deposit, so it’s really important to make sure you comply with your obligations in a timely fashion. Additionally, if you fail to protect your tenant’s deposit and provide them with the prescribed information, your powers to evict your tenant will be curtailed—you won’t be able to use Section 21to ask your tenant to vacate the property.
Once the tenancy has come to an end, you will need to return the deposit to your tenant, minus any amount that has been agreed between you to cover damage to the property. Bonds for rental properties should be returned to the tenant within 10 days of such an agreement. If you held the deposit in a custodial scheme, your tenant may also be due interest on the money. Deposits protected by an insurance-based scheme don’t accrue interest, however.
If your tenant does not agree with charges you want to place on his or her deposit, then the particular deposit protection scheme to which you subscribed will offer a free-of-charge resolution service, called an Alternative Dispute Resolution service. If both you and your tenant decide to use the service, you will both be obliged to accept its decision over resolution as binding. If either of you refuse to use the service, the dispute will most likely end up in court.
Buying and letting property can be a lucrative way of both growing your capital and creating an income stream. However, there is a lot to learn if you haven’t done it before—not just about the bonds for rental properties—and even more if you’re thinking of buying and letting a property overseas. Pryce Warner can offer you expert advice in this area, so don’t hesitate to get in touch