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Tenancy Deposit Protection



Tue 19 December 2017 HELEN TOWNSEND
HELEN TOWNSEND >

Head of Dispute Resolution

 Helen Townsend, head of our Dispute Resolution team, re-visits the legal requirements which have been in place now for more than a decade.

The Law

Following the implementation of the Housing Act 2007, the Tenancy Deposit Scheme came into force on 6 April 2007. The aim of the legislation (and subsequent Acts) is to provide further protection in respect of deposits. Since the implementation of the Act, further supporting legislation has been passed by the provisions of section 184 of the Localism Act 2012 which came into force following a series of controversial ‘‘landlord friendly’’ judgments being handed down by the Court of Appeal regarding the meanings of sections 213-215 of the Housing Act 2004 and the provisions of the Deregulation Act 2015. The original and supplemental legislation means that there has been a tough new reality for those landlords who are dis-organised and/or inexperienced.

Statutory obligations on the Landlord

When receiving a deposit in connection with an Assured Shorthold Tenancy, section 213 of the Housing Act 2004 requires the landlord, to (a) comply with the initial requirements of an authorised scheme; and (b) give the tenant the ‘prescribed’ information within 30 days of receipt of the deposit. 

So what are the ‘‘initial requirements’’?

Section 213(4) of the Housing Act 2004 defines these as being ‘‘such requirements imposed by the scheme as fall to be complied with by the landlord’’. There is thus no statutory definition of what the ‘‘initial requirements’’ are and what these will be will therefore depend on the contractual obligations between the landlord and the scheme. These have however been defined by the Court of Appeal as ‘‘taking steps to protect the deposit’’: Vision Enterprises Ltd v Tiensia [2012]. Further clarification has been provided by the Deregulation Act 2015 in respect of section 21 of Housing Act 1988 and section 215 of Housing Act 2004.

Prescribed information

The landlord must also provide their tenants with the ‘prescribed information’ which consists of information prescribed by the Housing (Tenancy Deposits) (Prescribed Information) Order 2007. Effectively that means the name, address, telephone number, e-mail address and any fax number of the scheme administrator of the authorised tenancy deposit scheme; any information contained in a leaflet supplied by the scheme administrator to the landlord; the procedures that apply under the scheme by which an amount in respect of a deposit may be paid or repaid to the tenant at the end of the tenancy have to be provided, as well as the procedures that apply under the scheme where either the landlord or the tenant is not contactable at the end of the tenancy; the procedures that apply under the scheme where the landlord and the tenant dispute the amount to be paid or repaid to the tenant in respect of the deposit and the facilities available under the scheme for enabling a dispute relating to the deposit to be resolved without recourse to litigation.

In Suurpere v Nice [2012], the Court of Appeal held that the landlord’s obligations regarding the prescribed information were of equal importance to the obligation to protect the deposit itself. Landlords should therefore be wary to ensure that not only is the deposit protected, but that correct and required information is communicated.

The Effects of Failure

If the landlord fails to comply then the effect can be financially catastrophic, especially when profit on the rental of the property may be tight. Section 213 of the Act, in respect of either protecting the deposit and/or providing the prescribed information within the 30 day period, means that the landlord will automatically fall foul of the requirements. There are two consequences.  

First, under section 214 subparagraphs (3), (3A) and (4) the tenant can seek the return of the deposit and an order that the landlord pays to them an amount of compensation which is not less than the amount of the deposit and not more than three times the amount of the deposit. Such payment is to be made to the tenant within 14 days.  That could be a significant amount of money, particularly with tenancies in London and the surrounding areas.

The amendments introduced by the 2011 Act, section 214(1)(a) actually allows the tenant to make an application on the 31st day after paying the deposit. The court does have discretion as to the amount of the penalty, but the compensation amount will however be not be less than the sum of the deposit itself. This provision means that if the tenant is aware of their rights then they can seek to benefit from the mistakes of a landlord who does not understand their obligations.

Second, under section 215 subparagraphs (1) and (2), the landlord is prevented from serving the tenant with a section 21 Notice Requiring Possession to regain possession if section 213 has not been complied with. Since 6 April 2012, if the landlord has failed to comply within the 30 day period, he forfeits the right to be able to rely on a section 21 notice until such times as the deposit has been returned in full or with such deductions as have been agreed between the landlord and tenant or ordered by a court. If the tenant refuses to accept the payment, or enter into negotiations regarding the deductions then a defaulting landlord may therefore be stuck in a situation where they cannot issue proceedings to get back possession of their property (if they need it). This may leave them in significant difficulties if they need to get the tenant out and the tenant has not breached their obligations under the tenancy (where Section 8 Housing Act 1988 may have come to their aid). There is also the fact that if the landlord returns the deposit in order to be allowed to rely on a section 21 notice, they cannot guarantee that the tenant will comply with the tenant’s covenants for the reminder of the tenancy.

Double the Default

Landlords who have failed to comply with the requirements may also find that a second breach occurs (and a second liability for compensation becomes payable) if the default has not been rectified by then end of the tenancy renewed which a periodic tenancy commences. If the deposit has been protected then the protection continued and does not have to be re-protected. If the deposit has not been protected then a second breach occurs and the compensation sought could be up to six times the amount.

Re-protection also will need to take place by an un-suspecting landlord who is renewing a tenancy with fundamental changes. If there is a new landlord, amended or additional tenant then the deposit must be re-protected and the prescribed information re-provided.

Rectifying breaches

In light of the decision in Okadigbo & Anor v Chan & Anor [2014], the best course of action for a defaulting landlord is to rectify the breach as quickly as possible. That does not preclude the tenant from making the claim, but it can limit the liability in terms of the amount of compensation that a court will award. The courts cannot award less than the amount of the deposit, but as they have discretion in respect of the amount to award which can be limited if the landlord’s actions have attempted to rectify their error.

If the landlord does rectify the breach then the landlord would also be able to serve the section 21 notice to obtain possession, albeit this would have to be the return of the deposit or upon conclusion of negotiations regarding the amount to be deducted therefrom.

In Summary

Landlords need to ensure they know their obligations. If they fail to do so, in respect of the deposits they receive, then they leave themselves open to substantial claims for compensation from their tenants. The landlord’s ignorance to their obligation is unfortunately not a defence, particularly as the legislation has been in place for some time. A landlord will often find that even if their breach is for a short period (i.e. completing the requirements just after the 30 day period) then they will leave themselves open to a claim for at least the amount of the deposit.

Landlords also need to be aware that even if the tenant has left, that does not preclude them from being able to make a claim. The tenant’s occupation of the premises at the time they bring a claim is not mandatory and landlords can therefore receive a claim from a tenant who has left their property some months beforehand.

Landlords also need to be aware of the effects that non-compliance with this and also the new obligations under the Deregulation Act 2015, particularly in respect of documentation that needs to be provided at the commencement of the tenancy which may inhibit their ability to be able to recover possession of the property.

For more information regarding this and also advice regarding the best ways of rectifying any default that may have occurred then please contact Helen and our team of specialist litigators who will be are able to provide you with advice.  Contact can be made with the team on 01733 333333.


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