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View Full Version : Does this suggestion get around Rent Deposit Scheme



socrates
21-01-2009, 21:50 PM
Below is a suggestion by a contributor from another website in another forum about the Rent Deposit Scheme.

Is it legal, will it stand up?


"A way I have found round the TDS which may help you:

Deposit required £450

Tenancy duration 12 months,

take no deposit, add £37.50 per month onto the rent, on your AST in the section "extra conditions" add the phrase or similar "upon completion of tenancy provided property is left in a clean & tidy condition with no outstanding debts, £450 will be refunded upon vacant possession" hope this helps."

jax2503
21-01-2009, 22:03 PM
Hi Scroates,

My feeling on it is it is a deposit in all but name. I personally think if a tenant was to take action on the grounds that it is a deposit I think they may win. I dont think it will work but thats just my opinion.

Looking to see what others think on the matter.

Jax

mind the gap
21-01-2009, 22:10 PM
Hi Scroates,

My feeling on it is it is a deposit in all but name. I personally think if a tenant was to take action on the grounds that it is a deposit I think they may win. I dont think it will work but thats just my opinion.

Looking to see what others think on the matter.

Jax

I agree with you jax, it's a deposit by another name, although frankly it seems more of a risk for the LL who has to extract a further lump of money every single month - with all the risks of non-payment - than extracting it in one go at start of tenancy when T is generally more able/willing to pay it. Half way through tenancy what's to stop T actually refusing to pay the extra £37? Then Ll would have nothing to fall back on if serious damage is done. No-brainer. If extra charge is not shown separately, i.e. if it appears as part of the rent, then rent is going to appear out of line with other similar props whose LLs take deposit, so Ts will be (even) harder to find.

I head of a similar, but more intelligent, wheeze where LL collected a socking great 'advance cleaning fee' of £300 per tenant, put in his bank account, and said the total (£1200) could be used either to pay a professional cleaning company and handyman at end of tenancy, or could be paid back to the tenants if they did all cleaning and minor repairs/redecoration themselves (subject to his approval, of course).

Is it a cleaning fee or is it a deposit?!

jax2503
21-01-2009, 22:27 PM
Hi MTG,

Still think it is a deposit, albeit another name. I feel that if it can be proved and you issue S21 notice it could be thrown out on a technicality. Not worth the hassle in my books.

Now to throw a spanner into the works. Lets say it is a HMO for instance, you can collect a severe admin fee. Now that cant be classed as a deposit. I have taken admin fees for my DSS lets in which case,I take the rent in advance and a £250 admin fee. It means it is more affordable for the tenant and either way I as landlord keep the admin fees, the tenant keeps the extra in there pocket and I feel works well. If a tenant cant build up a deposit they tend to stay longer as they cant afford to move. Works for me anyway.

Jax

mind the gap
21-01-2009, 22:31 PM
Hi MTG,

Still think it is a deposit, albeit another name. I feel that if it can be proved and you issue S21 notice it could be thrown out on a technicality. Not worth the hassle in my books.

Now to throw a spanner into the works. Lets say it is a HMO for instance, you can collect a severe admin fee. Now that cant be classed as a deposit. I have taken admin fees for my DSS lets in which case,I take the rent in advance and a £250 admin fee. It means it is more affordable for the tenant and either way I as landlord keep the admin fees, the tenant keeps the extra in there pocket and I feel works well. If a tenant cant build up a deposit they tend to stay longer as they cant afford to move. Works for me anyway.

Jax

Don't you have to justify what you do for your 'admin fee' to anyone? The tax office, for example?

jax2503
22-01-2009, 02:32 AM
Hi MTG,

Yes you have to justify what you do with it as it is classed as income, but I self generate an invoice for a consultancy fee, hence making no profit and not having to pay tax.

Jax

mind the gap
22-01-2009, 07:32 AM
But no-one has consulted you - or, if they have, your 'advice' does not seem to have been worth £250 per tenancy. You seem to me to have made a profit of £250 for doing no work.

Mars Mug
22-01-2009, 09:18 AM
Hi MTG,

Yes you have to justify what you do with it as it is classed as income, but I self generate an invoice for a consultancy fee, hence making no profit and not having to pay tax.

Jax

I might try that with my income, pay myself to ask myself questions, I might expect a refund at times due to bad advice though and it sounds like TAX evasion to me?

mind the gap
22-01-2009, 09:29 AM
I might try that with my income, pay myself to ask myself questions, I might expect a refund at times due to bad advice though and it sounds like TAX evasion to me?

Without wishing to fling accusations at anyone in particular, I incline to your view.

I ask myself all sorts of questions during my working day (mainly, 'Why I am here?' and Which slimeball took the last teabag?') some of which have no answers. Certainly not ones which are recordable, anyway. It would be very nice, I agree, to be able to claim against tax for this kind of self-consultation process.

mind the gap
22-01-2009, 10:54 AM
I would be interested to hear of other members' views on the legality if this one (#4 and #6)?

jta
22-01-2009, 11:03 AM
I hold all my places through a company, the company pays my salary. I suppose that if I had to I could charge the company for any extra work I did for it. I don't know what happens for a sole trader, without a company, though.

mind the gap
22-01-2009, 11:30 AM
I hold all my places through a company, the company pays my salary. I suppose that if I had to I could charge the company for any extra work I did for it. I don't know what happens for a sole trader, without a company, though.

Is that the issue?

I think Mars Mug and I were questioning the legality/morality of using a non-existent consultancy service for tax offsetting/avoidance purposes, or at the least, a consultancy service in which £250 is charged for an unrealistically small amount of work.

jta
22-01-2009, 11:37 AM
But can they not just set the amount they want to be paid for their time, it may well seem to be excessive, but is it illegal?

mind the gap
22-01-2009, 11:47 AM
But can they not just set the amount they want to be paid for their time, it may well seem to be excessive, but is it illegal?

I don't know. I'm sure plenty of 'consultants' to large organisations get away with charging ludicrous fees, but I'm just asking if you are allowed to charge to yourself (and then pay no tax) on 'invented' work.

If Ls aren't allowed to charge £25 to send out a letter reminding Ts to pay their rent on the grounds that it is not a realistic rate charge for the work done, what's the moral difference? I appreciate that one amount is a charge and the other is a fee, however...

I'm sure jax will find a way round it one way or the other.

Rodent1
22-01-2009, 11:54 AM
You seem to me to have made a profit of £250 for doing no work.


Obviously you have not required the services of a plumber of late !
Or an hour of legal representation ?

The Rodent

mind the gap
22-01-2009, 12:04 PM
Obviously you have not required the services of a plumber of late !
Or an hour of legal representation ?

The Rodent

At least their charges have some connection to the cost of professional training, length of relevant experience, the cost of overheads and materials, and the not irrelevant consideration that they are actually providing a service useful to their clients, which has been requested by the client. The scenario we are considering here is one where someone with no particular overheads and no formal qualifications is claiming they earn £250 for doing virtually no work.

It's not the same!

socrates
22-01-2009, 13:07 PM
Is there any answer the original question?

mind the gap
22-01-2009, 13:20 PM
Is there any answer the original question?

Yes. It was 'no'. 'A deposit by any other name /Would smell as deposity'. (With apols to the Bard).

jeffrey
22-01-2009, 13:30 PM
Yes. It was 'no'. 'A deposit by any other name /Would smell as deposity'. (With apols to the Bard).
Better: use the statutory definition [s.212(8) of Housing Act 2004].

"Tenancy deposit", in relation to a[n Assured] Shorthold Tenancy, means any money intended to be held (by the landlord or otherwise) as security for:
(a) the performance of any obligations of the tenant; or
(b) the discharge of any liability of his,
arising under or in connection with the tenancy.

Mars Mug
22-01-2009, 13:40 PM
So would a ‘refund’ which is conditional on the state of the property on departure be considered a deposit? My understanding from previous threads is that a court may well view it that way.

Lawcruncher
22-01-2009, 13:47 PM
1. The English courts do not like people who are too clever for their own good.

2. The English courts do not like people who try to get around statutory protection.

Mars Mug
22-01-2009, 13:57 PM
It seems to me that the proposal simply attempts to hide the method by which the deposit is collected, but the AST gives the game away by describing a ‘refund’ which is I believe still implies a deposit. I would have thought any ‘professional’ tenants out there looking to make some easy money would be keen to accept these conditions because they stand to make nearly £1000 out of the deal.

Rodent1
22-01-2009, 17:55 PM
A cash gift at the end of the AST for being a model tenant is not the same as a deposit if it is worded correctly.


The Rodent

Mars Mug
22-01-2009, 17:58 PM
Linking a 'cash gift' to the state of the property is a problem though ;)

How would you word it?

Rodent1
23-01-2009, 00:09 AM
At least their charges have some connection to the cost of professional training, length of relevant experience, the cost of overheads and materials, and the not irrelevant consideration that they are actually providing a service useful to their clients, which has been requested by the client. The scenario we are considering here is one where someone with no particular overheads and no formal qualifications is claiming they earn £250 for doing virtually no work.

It's not the same!

Have you any idea just ho much training and practice goes into doing absolutely nothing for a whole hour,,whilst trying to justify how much effort you have exerted over the past hour ?

I have to do this on a daily basis to Mrs R to justify my time spend on this forum each day ...haha

The Rodent

Rodent1
23-01-2009, 00:17 AM
Linking a 'cash gift' to the state of the property is a problem though ;)

How would you word it?

Rent is set 10% higher to include "deposit" paid over 12 months (only downside !)

By enrolling the T on the Tenant accreditation scheme,

If T pays all rent on time, behaves as a model tenant(ie observes and lives up to all terms of the AST) then a certificate of accreditation and a gowing reference provided, this has the double whammy of one single incident losing them the deposit/accreditation bonus immediately !

Hmmmmm...legal ? ethical ?


The Rodent

Lawcruncher
23-01-2009, 10:23 AM
The whole idea is a bit of a non-starter. The whole idea of a deposit is that it is "up-front" security.

I also wonder what the landlord's tax position is going to be. Is he not going to be taxed on the "enhanced" rent? On what basis would the "gift back" be deductible? Also, if it is not paid back the extra is definitely going to be taxable and the landlord is going to have less funds available to make good his losses.

In any event, protecting a deposit is not big deal.

Sorrel
23-01-2009, 10:42 AM
I might try that with my income, pay myself to ask myself questions, I might expect a refund at times due to bad advice though and it sounds like TAX evasion to me?

Haha love it, and I would probably agree...

Mars Mug
23-01-2009, 16:30 PM
If T pays all rent on time, behaves as a model tenant(ie observes and lives up to all terms of the AST) then a certificate of accreditation and a gowing reference provided, this has the double whammy of one single incident losing them the deposit/accreditation bonus immediately !

I’m not convinced that many tenants would see that as a big bonus compared to the 10% above average rent with no refundable deposit.


In any event, protecting a deposit is not big deal.

I don’t see an issue with protecting a deposit either, does it cost the landlord to do this?

TenantsLuvMe
23-01-2009, 17:22 PM
I’m not convinced that many tenants would see that as a big bonus compared to the 10% above average rent with no refundable deposit.

I don’t see an issue with protecting a deposit either, does it cost the landlord to do this?

There is a cost, as admin fees when the LL holds the money him/herself.

In addition, depositing the money with DPS is a risky prospect given the incompetence and delays that have been shown by those who work there.

Which is best?

I prefer to hold the money myself, then I can appropriate it as required and if required and as quickly as possible, which is usually less than a week.

Rodent1
23-01-2009, 23:44 PM
I also hold dep myself (and ins it !)

www.mydeposits (http://www.mydeposits)

The Rodent