Tenancy deposit issues when buying a property with a tenant in situ

Tenancy deposit issues when buying a property with a tenant in situ

Tessa Shepperson is a Norwich based lawyer specialising in residential landlord and tenant law. She runs the Landlord Law website (now in its 12th year) and is also a director of Easy Law Training Ltd and Your Law Store.

This is an article which recently appeared on Tessa’s Landlord Law Blog which we thought you would find of interest, particularly as we’re seeing a number of landlords starting to churn their portfolios as the sales market goes through its recovery phase. For would be landlords, there are some real plusses to buying a property with tenants in situ, the obvious ones being; you receive income from the outset of your ownership, from tenants where you’ve been able to witness their lifestyle before buying and you shouldn’t have to pay the agent a tenant find/set up fee. However, as Tessa discusses, it also comes with some negatives…….

“Here is a question to the blog clinic from a landlord

'We have recently bought a house with a tenant in situ, who has been living there for three years. The house is in good order.

The previous landlord did not protect the tenancy deposit.

We have given the tenant a new tenancy agreement, information about the deposit and where it will be placed and informed him that when he pays the deposit money  to us, he will be contacted by the DPS and be able to view the details.

He is a low wage earner and to date has not come forward with payment.  We appreciate that he has rights and it is not his fault that the previous landlord made off with his deposit. However we need to secure the agreement.

Have you any advice you could give, or is it a case of paying the deposit money ourselves in full and claiming back from the tenant in due course?

You may be in difficulties here'.

Tenancy deposits on change of landlord

When you buy a property with a tenant in situ, you take over from the original landlord, the rights and obligations that he had.  We often say that you ‘stand in the shoes’ of the previous landlord.

So if the tenant paid a deposit to the previous landlord, YOU are now responsible for it.  You cannot re-claim it from the tenant.

Strictly speaking the former landlord should have passed the money over to you at the time of purchase, but whether he did this or not is no concern of the tenant.  He paid his deposit to the landlord.  You are the landlord.  So you are responsible for returning it to him.

Since April 2007 landlords have been responsible for protecting deposits in a tenancy deposit scheme and there are penalties for failing to do this (and serve the prescribed information) within the 30 day time limit.

As the previous landlord failed to do this, my view is that you are now liable, in his place as landlord, for the penalty, should the tenant go to court to claim this.

So my advice is to keep quiet about the deposit.  Arrange to protect it (putting up the money yourself), and serve the prescribed information.

I would also suggest you don’t make any controversial deductions at the end of the tenancy which might prompt the tenant to seek advice and make a claim for the penalty award for failure to protect within the 30 days.

Note also by the way that should you wish to evict the tenant using the section 21 procedure – as the deposit was not protected within the time limit – you will need to refund the deposit money to the tenant before a valid section 21 notice can be served.”

We hope you found this information helpful.  

To see more from Tessa visit the Landlord Law Blog, and she can also be found on Google+