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Attention Landlords: Change to law of tenancy deposits

The introduction of compulsory authorised tenancy deposit schemes for assured shorthold tenancies under the Housing Act 2004 (“the Act”) was intended to give greater protection to tenants by providing safeguards against the misuse of their deposits and by introducing sanctions for landlords who failed to comply.

Unfortunately the decisions of the Court of Appeal in the cases of Tiensia v Vision Enterprises Ltd (trading as Universal Estates); Honeysuckle Properties v Fletcher and others [2010] and Gladehurst Properties Ltd v Hashemi (on behalf of himself and Matthew Johnson) [2011] rendered the legislative scheme somewhat ‘toothless’. Following these decisions, landlords could cure their default and avoid sanctions under the scheme by protecting the deposit late, i.e. at any time up to the hearing of a tenant’s application for remedies under the Act. Furthermore, once a tenancy had ended grounds for a tenant’s application were regarded by the court as having ceased to exist, with the result that the landlord could avoid sanctions altogether.

The decisions were heavily criticised and new legislation has now been introduced. The changes allow the court to order landlords who fail to comply with these requirements to pay compensation to tenants. The penalties apply to deposits paid for assured shorthold tenancies which started or were renewed on or after 6 April 2007:-:-

Tenancy Deposits

For tenancy deposits paid to a landlord or agent on or after 6 April 2012, within 30 days of receiving it they must (1) protect the deposit in an authorised scheme and (2) provide the tenant with required information. If the landlord protects the deposit after 30 days, fails to give the tenant details of the scheme used within 30 days or fails to protect the deposit at all, the court can order him to make a compensation payment of between 1 to 3 times the value of the deposit. The court can also order a landlord to protect a deposit by placing it in a scheme.

For tenancy deposits paid to a landlord or agent between 6 April 2007 and 5 April 2012, the landlord must have protected the deposit in an authorised scheme by 6 May 2012 and must have provided the tenant with required information by the same date. If the landlord complies late with these requirements, the court may order him to pay the tenant 1 to 3 times the value of the deposit. The court may also fine the landlord where he has failed to protect the deposit at all.

The court can also order a landlord to pay compensation to a former tenant if the landlord did not protect the tenant’s deposit and the tenancy has since ended. This does not apply however to tenancies which ended before 6 April 2012, albeit that it may be possible for a former tenant in those circumstances to take action to have the unprotected deposit returned.

It is important to note that if a landlord has taken a tenant’s deposit but has not complied with the requirements for placing it in an authorised scheme or provided the tenant with the required information, any two-month ‘Section 21’ notice which the landlord serves upon the tenant requiring possession whilst these steps are outstanding will be invalid. The landlord might still be able to evict for other reasons however, if for example the tenant has breached conditions of the tenancy such as not paying rent.