Tenancy deposit schemes – a review

16th May 2011

Court Developments in relation to Landlords’ obligations under The Housing Act 2004

Landlords will no doubt be familiar with the obligations imposed on them by the Act and the consequences of failing to fully comply within stipulated deadlines.

The obligation to protect a deposit within an authorised scheme applies to Assured Tenancies – including Assured Shorthold Tenancies – and having protected a deposit under a scheme the landlord is required to:

  • Comply with the “initial requirements” of the particular scheme in which the deposit is protected within 14 days of receiving the deposit;
  • Provide the so called “prescribed information” to the tenant in the prescribed form or a form substantially to the same effect within 14 days of the date on which the deposit is received.

 Regarding the obligation to comply with the “initial requirements” of the scheme, this will depend upon the actual scheme used as these will vary; for example, there may be a requirement to provide information in a particular format. Landlords are advised to check and familiarise themselves with the terms of their adopted scheme.

The “prescribed information” (see 2 above) is defined within regulations complimenting the Act called the Housing (Tenancy Deposits) (Prescribed Information) Order 2007.  Landlords and agents wishing to ensure full compliance with Section 213(5) of the 2004 Act are advised to consult the regulations made on the government website:

www.legislation.gov. uk/uksi/2007/797/article/2/made.

As is often the case with new legislation it has taken several years for the Courts to consider and interpret the Act.  Landlords, agents (and those advising them) have long considered the rules to be particularly harsh towards landlords where perhaps only minor delay or other technical breaches have occurred. To illustrate, failure to protect a deposit or comply with the above requirements has the following consequences:

  • No valid Section 21 Notice can be served on the tenant until a landlord has complied with the requirements of the Act;
  • The tenant can apply to a Court for the return of his deposit and a sum equal to three times the amount of the deposit.

 In recent months there have been several Court decisions on this issue, with some resolving uncertainties in the landlords’ favour:

In the case of a Section 21 Notice, it is unlikely that late compliance with the regulations will validate the Notice. Therefore, under these circumstances landlords would be advised to be cautious and re-send the Notice as soon as possible after complying with the regulations.

However, a recent Court of Appeal case Tiensia –v- Vision Enterprises Ltd has provided some comfort to landlords who have failed to comply and face a claim for three times the deposit. In Tiensia it was ruled that the relevant time for compliance with the Act is the date the tenant’s claim for a penalty payment is heard by the Court. In essence therefore, the Court confirmed that the landlord can “rectify” his default and comply retrospectively with the legislation, thereby avoiding the penalty award.  This will provide some comfort for landlords facing harsh penalties for what may have been administrative oversight. Nevertheless, strict compliance with the rules (and deadlines) is still advisable in every case.

It should also be noted that although failure to comply does not invalidate a Section 8 notice, (based on rent arrears for example) any counterclaim by a tenant for three times their deposit could be set against arrears, thereby resulting in loss of the “mandatory ground” for possession (i.e. 2 months or more arrears).

Although the Courts have recently handed down some decisions that give landlords and tenants greater clarity on compliance with deposit schemes, the best advice, as always, is that “prevention is better than cure!”

As featured in CMRent Magazine

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