Tenancy deposits & homeless prevention payments

Aim of this article

This article aims to provide an introduction for homelessness officers on why paying tenancy deposits is often the most cost effective way of using prevention funds to secure private tenancies.

It also explains the importance of ensuring your paperwork and processes are fit for purpose when paying tenancy deposits, and highlights some of the contractual terms you may wish to consider.

This article follows my previous post about a landlord deposit payment agreement.

Spending to save

If you work for a council homeless team you'll no doubt have a pot of money specifically set aside for preventing homelessness.

If you're faced with a family at risk of eviction it just doesn't make sense to spend thousands of pounds on temporary accommodation if you can get the request for possession withdrawn by spending just a few hundred quid, e.g. by clearing rent arrears.

And of course the same principle applies if you're trying to help someone obtain privately rented accommodation.

Barriers to arranging private lets

There can be many barriers to getting a private landlord to accept a homeless applicant as a tenant. Of course the barriers are often financial, for example:

• The gap between market rents and local housing allowance rates.
• The rules restricting direct payment of housing benefit to landlords.
• The risk that the prospective tenant may default on payments.
• The applicant simply not having the money to pay rent in advance and/or a tenancy deposit.
• A lack of items needed to successfully set up home, e.g. furnishings, white goods.

Nowadays homeless officers have to problem solvers and negotiators who look for opportunities to overcome these barriers.

Prevention funds provide a finite amount of money each year. And with the downward pressure on council budgets there's a need to make this money go further.

Choice

There's often a choice about how you can 'spend to save'.

This choice manifests itself at a policy level (via guidelines for staff on how prevention funds should generally be spent) and when deciding how money is spent in a particular case.

A prevention fund payment is often only one piece of a jigsaw; when trying to make a potential tenancy 'stack up' financially it can be combined with money from other sources.

In addition to the money (if any) that the homeless applicant can contribute you could be helping them obtain money from:

• their relatives or household members
• discretionary housing payments (DHPs)
• budgeting loans (or universal credit budgeting advance payments) and
• grant payments, e.g. from charitable trusts set up to help particular groups.

Staff will often have a choice about what to pay from the prevention pot and which items other parties should be asked to fund. The fact that DHPs can often be requested for similar items (e.g. rent in advance, deposits, removal costs) provides additional flexibility. However, it should be noted that if a DHP is used to fund a tenancy deposit the housing benefit department cannot usually reclaim the money (see paras 2.15 and 5.9 of the current DHP Guidance Manual).

The homeless officer is a key player when it comes to exercising this choice. By working with the homeless applicant they can propose to the various stakeholders - applicant, landlord, housing benefits etc - how the various funding sources should be used. The officer can then help the applicant submit any necessary applications for financial help.

Making your prevention fund work harder

Many homeless departments have traditionally offered a cashless bond guarantee to landlords. Bonds are very cost effective (although they require investment to cover potential claims on the scheme).

However in today's competitive rental market up-front cash payments are often required to lever homeless applicants into the private sector.

Cash can be paid for a variety of items. In addition to the types of payments already mentioned some councils make non-returnable incentive payments to private landlords. These are generally paid when the alternatives have been unsuccessful in facilitating the required number of private lets.

Advantages of tenancy deposits

Paying a tenancy deposit to a landlord* to secure an assured shorthold tenancy has the following advantages:

• The council should retain ownership of the money rather than the tenant benefiting monetarily (your documentation should confirm this).
• The landlord should register the council's interest when they protect the deposit using one of the statutory deposit protection schemes (again you should make this clear).
• The council is a 'relevant person' under section 213(10) of the Housing Act 2004. Under s.214 a relevant person can sue the landlord if they breach the initial requirements of an authorised deposit protection scheme or if they don't serve a notice containing certain information (see Reg 2 of the Prescribed Information Order) within 30 days of receiving the money.
• Landlords are solvent and have assets (in contrast to homeless applicants). Consequently court action and enforcement of a money judgment is practically available as a last resort if a landlord improperly fails to return deposit money.
• The potential adverse effects of enforcement action on the landlords' letting business incentivises compliance with the deposit protection rules. Repeated breaches could lead to a landlord failing the statutory 'fit and proper person' tests. As a result they could, for example, be unable to obtain a HMO licence.

*There's a difference between paying a tenancy deposit to a landlord directly and giving the money to a prospective tenant to pass onto the landlord. I've encountered councils who routinely do the latter. Sometimes the money is paid as a loan. However the amounts repaid by tenants will be far less than where landlords are paid directly under a well managed scheme.

Deciding when landlords have to repay

It will be apparent that many of the advantages of paying tenancy deposits result from the statutory framework regulating how landlords must deal with the money.

In practical terms the deposit protection rules mean there's more opportunities for homelessness teams to legitimately demand repayment of deposit money when the landlord is in breach. And the legal sanctions for non-compliance strengthen your position.

You also have the opportunity of imposing contractual requirements on the landlord (providing of course that the landlord accepts them).

For example, an agreement can impose terms requiring landlords to return the money if they:

• don't protect the deposit within 30 days of receiving the money
• don't serve a notice on the council within 30 days that contains all the prescribed information
• don't comply with the rules of the particular scheme they've used to protect the deposit
• breach another term of your deposit payment contract, e.g. vary the tenancy agreement without first obtaining the council's consent in writing.

The first three requirements in the above list can easily be justified because landlords must by law take these actions anyway.

You should make sure that your agreement with the landlord:

• Confirms the conditions on which the deposit is to be held (by augmenting any relevant terms in the tenancy agreement).
• Lessens the scope for ambiguities that might affect repayment, e.g. by confirming the council owns the money and that its interest must be registered with the relevant protection scheme.
• Sets out when certain events must occur, e.g. access for inspections immediately prior to the grant and the ending of the tenancy (or ending of the deposit payment agreement).
• Confirms the circumstances in which the landlord must notify the council of a particular event or matter. This can help to ensure that the council can take action when necessary to safeguard its money, e.g. the landlord should be required to notify the council when either the landlord or tenant serves notice to end the tenancy. This will allow the council to inspect the premises and obtain information that's necessary to decide whether any proposed deductions are reasonable.

Keeping landlords on board

It's vital of course to maintain good relationships with those private landlords with whom you have arrangements to house homeless persons. After all there are already numerous reasons why your average private landlord might choose not to work with a homeless team! We don't want to add to those reasons by appearing to act unreasonably, e.g. by imposing overly restrictive conditions on our offer of monetary help.

Also, when individual landlords are found to be in breach, staff will need to carefully consider how best to proceed. Factors needing to be taken into account may include any potential adverse implications for:

• the tenant's ability to keep their home, or
• landlords' willingness in future to make other properties available for homeless applicants.

The powerful legal remedies available to the council for breach of the statutory deposit protection rules - including the right to sue the landlord for compensation - shouldn't be pursued without careful consideration. There will often be less punitive measures that can be taken to safeguard the council's money which are less likely to adversely affect landlords' willingness to work in partnership.

However local authorities do have a role in ensuring that private landlords understand and abide by the rules governing tenancy deposits.

Providing you're clear with landlords from the outset about how your scheme and the deposit protection rules operate there's no reason in principle why they shouldn't agree to abide by their statutory obligations.

I'd suggest that requiring landlords to comply with the protection rules if they take a tenancy deposit - and a few additional contractual provisions - isn't onerous or unreasonable. After all deposit protection has been in place for 10 years (not that you'd guess from the number of landlords who don't comply).

At the same time getting private landlords on board is about being flexible. For instance you might find that a landlord requires a larger deposit than the standard one month's rent equivalent to address the riskiness of housing homeless applicants. Meeting this demand may be cost effective if you're team is experiencing a shortage of private lets. Particularly if your processes and contract mean that - absent evidenced loss by the landlord - you're likely to get your money back. And even when you're able to agree with landlords in advance how your incentives will operate you may still sometimes need to be flexible to ensure certain applicants can be re-housed.

Of course there may well be cases where a deposit doesn't meet the landlord's needs and it's cost effective to offer other incentives, either as an alternative or in addition to a deposit.

Non-monetary incentives in the context of deposit payments

The contractual obligations you impose when paying a deposit don't necessarily all have to be for the council's benefit either.

The landlords in your area may be more willing to work with you (and accept deposit payments) if you undertake to provide a service they value.

For example you could commit, as part of the agreement, to:

• Obtain the tenant's consent for information about any housing benefit claim to be disclosed (while confirming that the claimant may subsequently withdraw consent).
• Help any tenant claiming housing benefit to request direct payments if the council reasonably considers the claimant is likely to qualify.
• Contact the tenant within a specified period if the landlord suspects a breach of the tenancy has taken place so that housing options can help the tenant address any breaches (since breaches are likely to result in a deduction from the deposit money).

It will often be more appropriate for such interventions during the tenancy to be delivered by a housing support service rather than by housing options (or by housing management staff if you're offering comprehensive management of tenancies).

Reviewing your processes and paperwork

So what should we be doing to ensure our arrangements for paying tenancy deposits are fit for purpose?

Key steps include:

Reviewing your prevention payments policy

While there's no legal duty to have a policy it's clearly desirable. A policy helps to ensure that decision-making is consistent and meets the council's strategic and operational objectives.

It should be based on a thorough understanding of applicants' needs and take account of the particular barriers preventing homeless applicants from renting privately in your particular district. These issues should have been covered when your homelessness strategy was last reviewed.

The policy should also provide guidance for decision-makers on how their discretion should be exercised. The factors that staff must have regard to when making decisions should be spelt out. For example whether a payment will be repaid to the council should usually be a factor staff take into account when deciding what type of payment(s) to make.

Reviewing your procedures

It's crucial to review your processes from the landlord's perspective. For example do you take too long to issue payments? If so can payments be expedited?

In relation to the payment of tenancy deposits you should:

• Ensure you're transparent with landlords so they're fully informed about how the scheme works and their obligations (both statutory and contractual).
• Make it a requirement that the council has the opportunity to check the contents of the tenancy agreement the landlord proposes to use, including those terms governing when deposit money may be retained by the landlord.
• Ensure there's a contract for the landlord to complete and return.
• Make sure there's a contract for the applicant setting out their obligations, e.g. a requirement for them to repay the council any sums that are legitimately deducted from the deposit when the tenancy (or agreement with the landlord) ends.
• Ensure the property is inspected and that a detailed inventory is completed (with photographs) both when the tenancy is granted and when the tenancy (or agreement with the landlord) ends. This will enable you to evaluate any proposals by the landlord to make deductions from the deposit money in respect of rent arrears, damages etc.
• Ensure there's effective monitoring of all cases where landlords hold council money in the form of a deposit. For example after 30 days staff will need to check the deposit money has been protected and that the information notice has been received. If not they'll need to contact the landlord and decide what action to take.

Obtaining legal advice

You should ensure your policy and contractual documentation is reviewed by your legal section.

Combining the inspection function with suitability inquiries

Are your prevention fund processes integrated, where appropriate, with the inquiries you undertake to decide whether accommodation is suitable under the homelessness legislation? (Including the requirements under Article 3 of the 2012 Suitability Order, or for applicants in Wales who may have a priority need, Article 8 of the 2015 Suitability Order).

Public information

Are your 'landlord offer' documents professionally designed? Is key information available online for both landlords and applicants? It's a good idea not to 'tie yourself down' when advertising the type of help that's available. Staff will then have the flexibility to offer different kinds of incentives where appropriate.

Template documents

You'll also need of course to ensure other necessary documentation is in place, including the standard letters and emails staff will need to recover monies from landlords.

You may want to check out the documents in the Resources section for this purpose.

Training

It's essential that staff issuing and monitoring prevention payments can practically apply the relevant principles.

For example staff will need a basic understanding of the following:

• private landlords' legal duties
• when breach of the deposit protection rules invalidates a section 21 notice
• suitability requirements under the homelessness legislation, and
• the contractual terms you impose for each type of prevention payment.

Staff should be confident enough to recognise when help should be sought from a supervisor (or the legal section) e.g. when a landlord's tenancy agreement includes terms that may be unlawful or provisions that potentially conflict with your standard landlord agreement.

Conclusion

The reforms contained in the Homelessness Reduction Act reinforce the need to source private lettings to discharge homelessness duties. Approving an applicant for a deposit will often be a 'reasonable step' that the council can take under the new section 189B duty to secure that the applicant is able to obtain accommodation.

So now is a good time to review your policies and processes to ensure that you're facilitating effective relationships with private landlords, but also to make sure that best use is made of the money paid out to prevent homelessness.

Funding tenancy deposits is only one way to prevent homelessness. However they have the potential to minimise your overall expenditure on incentives.

When there's a choice between paying a deposit and funding another item it's often not a hard choice to make.