Don’t Fall Foul of Deposit Protection Rules

If you don’t know the regulations on how to deal with a Tenancy Deposit, you could be seriously out of pocket AND not be able to evict your tenant should this be necessary.

Both of these could leave you with a hefty bill.

Why was Deposit Protection Introduced?

The requirement to protect a tenancy deposit taken for an Assured Shorthold Tenancy in England and Wales was introduced on 6 April 2007, following its inclusion in the Housing Act 2004. Initially, deposits needed protecting within 14 calendar days of receipt by the landlord. This was subsequently changed to 30 days on  6 April 2012 as a result of the Localism Bill 2011.

The legislation was introduced because the Government recognised many deposits were being unfairly withheld at the end of a tenancy. Introducing Tenancy Deposit Protection was identified as a way to raise standards in the lettings industry and ensure tenants are treated fairly at the end of the tenancy. The legislation also introduced standards for the way deposit disputes are handled. All scheme providers need to offer a free Alternative Dispute Resolution (ADR) service for occasions where tenants and landlords can’t agree on how much should be deducted from a deposit.

Your Responsibilities

As a landlord, you cannot simply hold onto the tenants deposit and put in the back pocket of your trousers!

You are required to protect your tenant’s deposit within 30 days of receiving it. A deposit is considered ‘received’ from the moment you take the payment, not when the funds have cleared. This applies to all forms of payment, whether it’s a cheque, a bank transfer or cash.

If you fail to comply with your legal obligations, there are two possible sanctions:

● You cannot end the tenancy or regain possession of your property under section 21 of the Housing Act 1998 until the deposit has been repaid or a court case has ended.

● Your tenant can apply to a County Court to receive compensation between once and three times their deposit’s value if:- they think their deposit is not protected- they’ve not received information about the scheme you protected their deposit with.

Meet Mrs. Fallows

This is a real situation that occurred in January of this year when  Mrs Fallows (not her real name) called our office:

Mrs Fallows was a landlord who managed her own property. She was being taken to court for the sum of just under £8,000. This amount was made up of 3 times the rent on the property, plus the original deposit, plus costs.

Mrs Fallows had had two previous tenancies at the property spanning around 5 years. One was prior to the deposit regulations being introduced  and the other was a tenancy set up in a Company name.

Now, lets to Companies are not Assured Shorthold Tenancies (ASTs). The reason for this is that the act which set up the protective code which governs ASTs, the Housing Act 1988, specifically states that its provisions apply only to ‘individuals’. Companies are businesses and not individuals and do not need the protection that the act gives and are, in fact, governed by the underlying ‘common law‘; the legal rules which regulated tenancies before the Rent Act and Housing Acts came along to change them.

The main practical effect of this is that the majority of documentation is different to an ‘individual’ let.

Also, as this is not an AST, it is not necessary to protect the deposit in a tenancy deposit scheme, as the tenancy deposit regulations only apply to AST’s.

This is where Mrs. Fallows made a potentially very costly assumption, believing that she could follow the same process as she had done previously, however, the current tenant was an individual so the deposit regulations apply.

Mrs. Fallows view that she was not a ‘Professional Landlord’ and therefore was not aware of the the law, was dismissed by the court. See our article on ‘Ignorance is not Bliss’.

The case continues…

Penalties for Non Compliance

Penalty – landlords who fail to protect the deposit or give the prescribed information within 30 days of receipt will be liable to pay the tenant between 1 and 3 times the deposit as a financial penalty and, on top of this, the court can order they return the deposit as well.
The landlord cannot serve a Section 21 notice until the deposit is returned. The tenant can claim the financial penalty for up to 6 years after the deposit was not protected.

Section 21 rights where Prescribed Information is not given – If the deposit has been protected but the prescribed information has not been served within 30 days of the receipt of the deposit, then no Section 21 will be valid until this has been served.
If the landlord does not do this within 30 days of the start of the tenancy then they can still get their Section 21 rights back by serving the prescribed information. However, they will be open to the financial penalty for not providing it within the first 30 days.

If you do want to Self Manage then you need to understand all aspects of the regulations. If not, call us on 01332 300170 and let us take the hassle away!