I haven’t protected the tenant’s deposit. What can I do? How will it affect me? Can I be fined?

On 6th April 2012 amendments were made to the Housing Act 2004 by the Localism Act 2011.

Previous cases that had been before the courts and their subsequent rulings had meant that where a deposit had not been protected it was pretty easy for landlords or agents to avoid any of the penalties as included in section 214 of the Housing Act 2004.

The changes were intended to correct the original errors and give the Housing Act 2004 a bit more bite.

The changes now mean that if a deposit is not protected properly the landlord and/or agent ‘will’ be subject to a penalty amount if the tenant makes an application to the Court, and a section 21 notice for possession cannot be issued

The other serious consequence is that a landlord will not be able to serve a valid Notice under section 21 of the Housing Act 1988 (Section 215 Housing Act 2004).

The Section 21 Notice allows a tenancy to be ended without the landlord having to prove any fault on the part of the tenant and is a sure fire way for a landlord to obtain possession.

To properly protect a deposit there must be strict compliance with the rules of one of the authorised Tenant Deposit schemes. This now means that the deposit MUST be protected within 30 days of receipt (not necessarily the same as the start date of the tenancy), together with the giving of any and all prescribed information and any other requirements of the particular scheme (some schemes require an advice leaflet to be given).

If the deposit is not properly registered what can happen?

Firstly you will not be able to use a section 21 Notice to seek possession. The court forms for accelerated possession have been changed to ensure that details of the deposit and its registration are included.

In our experience Courts are now assessing this information and considering if deposits have been properly registered. The tenant may also make an application under section 214 of the Housing Act 2004 to seek a return of the deposit and also the fixed penalty amount.

The Court has the power to order the return of the deposit in full to the tenant or that it is paid into an authorised scheme. Whilst prior to the changes the Court had to award a penalty amount of three times the deposit this has been amended so the Court can award an amount between one and three times the deposit amount.

It is here that the Court retains some discretion as to the amount. It will be for the landlord or the agent to adduce evidence to try and mitigate this amount perhaps by showing that there was a technical breach, financial hardship or a similar reason that may be considered by the court.

Clearly an award requiring the return of a deposit and also a penalty of three times the deposit (which of itself could be more than 4 months rent) will be crippling to many landlords and if such a claim is made as a counterclaim in rent arrears proceedings may wipe out any and all arrears meaning that possession is not granted.

With regards to section 21 notices, if the authorised scheme has not been strictly complied with the landlord cannot serve a valid Notice.

At this stage there are no particular cases relating to the changes and how in practice the Court will look at this situation. It is however believed that simply complying with the requirements out of time will not of itself allow you to then serve a valid section 21 Notice.

Section 215 does provide that you can return the deposit in full to the tenant. It is believed that tenants will be advised not to accept the return of the deposit so in this way preventing a landlord from being able to serve a section 21 Notice. If the tenant brings a claim under section 214 Housing Act 2004 and this has been determined, withdrawn or settled this will allow the landlord to then be able to serve a section 21 Notice.

If a section 21 Notice cannot be served this would then mean that a landlord could not rely upon this mandatory no fault ground to bring possession proceedings. A tenant would then find themselves in the position of almost being akin to an assured tenant, only able to be made the subject of a possession order if one of the grounds to Schedule 2 of the Housing Act 1988 had been made out.

We are yet to see how the Courts interpret the amended Act and whether they give landlords ‘get outs’ as they did previously. Most people will not want to be the potentially expensive guinea pig to test this situation.

The will of Parliament was to give the legislation teeth as part of the regulation of the private rented sector. It is vital that you do comply and if you become aware of a tenant’s deposit, which has slipped through the net, take legal advice immediately.

Re-registering your tenant’s deposit if the terms of the tenancy changes

The different tenant deposit schemes do not need the deposit re-registered, however you may need to login to your account to notify the scheme that the tenancy is now changed, and is a period term.

However we would suggest that you re-issue the schemes prescribed information reflecting the changes.

Section 5 of the Housing Act 1988 suggests that when a tenancy changes from a fixed term to a periodic term, it is a new tenancy.

If you don’t re-issue new prescribed information terms, you may be open to a court interpretation that you have not followed the deposit rules and therefore can be subsequently ordered to pay a discretionary award to the tenants.

We don’t think it’s worth taking any chances.

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