What About Lodgers’ Deposits ?

Introduction

Tenants are getting some good news lately. The Draft Tenants Fees Bill was recently published outlining the Government’s intentions to outlaw letting agent fees following open consultation earlier in the year. And, although there is at least another half an year before the ban could take place, it looks like tenants might finally get spared from a big upfront cost when renting a property.

But in this blog post, we want to return to the single biggest upfront cost when taking up a property – deposits. While letting fees average at about £404 for two tenants, the average deposit for England and Wales is £970.18, as reported by Deposit Protection Scheme. And in London, it’s double at an average of £1,831.14.

Shelter’s studies indicate that more and more renters essentially become urban nomads. A whooping 1 in 4 renters has moved in 2015, according to the organization’s statistics. Nearly a third (29%) of renters have moved three or more times in a period of 5 years. In London, that number skyrockets up to 37%.

In a country where 4.3 million households occupy private rented properties, that’s a staggering amount of deposits being paid each year.

Deposit protection is mandatory…for some

A decade ago, the government made it a legal requirement to protect tenants’ deposits in a government backed scheme, where the money would be held until the end of the tenancy. When they leave, tenants could recover their deposit, provided there are no reasonable deductions.

Disputes are handled by impartial adjudicators appointed by the scheme and both tenants and landlords could rely on a fair, evidence-based judgement. Landlords who don’t comply with the strict rules, face the risk of paying up to three times the deposit amount as compensation to their tenants.

Sounds like problem solved… In reality, many tenants still experience problems with recovering their deposits. And we’re not talking about tenants who had an ADR ruled against them.

As great as it is, deposit protection has one critical flaw – it’s only mandatory for some landlords. Indeed, deposit protection is not required for lodger landlords who rent their spare room to somebody and share the common facilities.

Deposit protection regulations only apply to assured shorthold tenancies. Lodgers cannot use an assured shorthold tenancy, as it requires for the landlord to not physically live in the same property as the tenant. In fact, to have a real tenancy, the law requires that the tenant has “exclusive occupancy” and can keep everybody out (landlord included).

So, lodgers are not real tenants, at least not according to the law. What lodgers are, are license holders. The difference, is that tenants have a number of rights which lodgers don’t, like deposit protection, exclusive access to the property, right to quiet enjoyment and protection from illegal eviction (including an extended eviction procedure that requires a court decision).

Some can hardly be applied in a lodging living arrangement. It’s not reasonable to expect total privacy when living in somebody’s spare bedroom. It’s also reasonable for a landlord to expect they can quickly remove a troublesome lodger from their own home.

On the other hand, there is absolutely no reason to take away other rights, like deposit protection, which only serve to eliminate abuse and unfair treatment.

How to get your deposit back as a lodger ?

Currently, live-in landlords hold both the deposit and the power to decide how much of that deposit is returned when the lodger moves out. There is a clear conflict of interest, as landlords are easily tempted to deduct more than they need to. And many do.

Here is a real world example: Elizabeth, from our Facebook community, shared about how she and her dog entered a lodging and paid £900 – one of the highest one the market.

Two weeks later, her landlady wrongly accused her stealing a picture off the wall and told her to leave. She was charged her £320 for cleaning and another £130 for a drive to her brother’s. Elizabeth claims she’s been pedantic about cleaning, taking into account her pet dog leaving fur around the house. Furthermore, the landlady offered to drive her out of good will, not mentioning a fee prior to the trip.

With no deposit protection, the only way for Elizabeth to recover her money is to file a claim in the small claims courts. However, the process is prolonged and there are upfront costs that won’t be recovered if she loses the case. Furthermore, with no inventory there is no way to prove who is right.

Considering how much time and energy is spent and stress incurred in order to take legal action against your landlord, it’s no wonder many lodgers just move on.

However, many tenants can’t afford to lose the deposit, because they need to use it for their next rental property. In fact, a lot of tenants who barely manage to meet ends become homeless, after being evicted or have their deposit withheld leaving them without the necessary funds to pay for the next deposit and fees.

How many lodgers are out there ?

In the recent years, there has been a great interest in the spare room economy. There are more lodgers than ever now.

On one hand, the Government realises that homeowners have too many spare rooms, but at the same time there isn’t enough housing supply. So, on April the 6th, 2016, they introduced an updated Rent a Room Scheme, allowing homeowners to net up to £7,500 tax-free per year.

When it’s allowed by their mortgage provider, many homeowners would much rather have a lodger in the house to help out with the payments. In fact in 2011, a poll by Spareroom suggested that 59% of homeowners can’t afford to pay the mortgage without their lodger.

On the other hand, ever-growing rental prices and short supply of housing are pushing more and more people into cheaper accommodation, like HMOs and lodgings. Renters are sacrificing everything else in order to have a desirable location that fits within their budget.

Spareroom.co.uk – the biggest online portal for letting and renting spare rooms claims they let one room every three minutes. That makes about 175,000 rooms each year. Even though individual rooms go for considerably less than whole private properties, it still amounts to millions of pounds, and that’s just a single website.

In 2013, research by Santander Mortgages estimated that there are 1.7 million homeowners in the UK, that offer their spare room to lodgers. This is also backed by another survey, performed by insurance company LV.

Two years later, in 2015, LV ascertained that between 2009 and 2014, the amount of homeowners renting out a spare room has doubled from 1.4% to 2.7%. That makes about 1.74 million homeowners who take in a lodger.

Rooms come in all shapes and sizes. You can find a room for £150 per month and then there are some for £900. However, considering most go for £150 – £350 per month, we’re looking at potential £435 million per year being collected as lodger deposits.

That’s £435 million whose real owners (the lodgers) have absolutely no protection for their money. And this basic calculation doesn’t even take into account landlords who cycle multiple lodgers during the year, or rooms at the high end of the spectrum.

What you can do about it ?

Are you a lodger ? Do you want more rights ? Of course you do !

Jerome Mcbean realised there is desire for change, but no catalyst. So, he initiated a campaign calling on the DCLG to change the law and give lodgers some protection. Here is what he said for The Tenants’ Voice:

“Please also join me in calling on the Department for Communities and Local Government (DCLG) to make it a legal requirement for lodgers deposits to be protected – either joining existing rental deposit schemes that cover ASTs or creating a new one – as well as putting in place sanctions for baseless non-returns of deposits?

I am running a 38 Degrees petition to give lodgers the protection they need.”

The bottom line:

Deposit protection gives lodgers basic financial security and prevents abuse. In a potentially sudden / accelerated eviction they can rely on their deposit to find another place to live.

If deposit protection was available, most landlords would consider making even a basic inventory to make sure their property’s best interest is safeguarded. More landlords would start using lodger agreements that make rights and obligations clear and enforceable for both lodger and landlord.

In the end, this is a step that will help professionalise what is a very amature – occupied business niche.