Tenancy Deposits - the headache continues!

The Tenancy Deposit Scheme continues to cause headaches for Landlords. In December 2014, the Court of Appeal made a decision on a deposit received before April 2007 (the date the obligation to register a deposit began).

Background

Since April 2007, deposits taken by residential landlords should have been registered in one of the recognised schemes. A failure to do so in time, or at all, means being unable to use accelerated possession proceedings and being liable to pay significant compensation to the tenant.

In Charalambous v NG, the Assured Shorthold Tenancy (AST) commenced in 2002 and a deposit was paid at that time. Whilst the tenancy was renewed a number of times, the last renewal was in 2005. This meant that the tenancy was a statutory periodic one before April 2007, and did not change afterwards. The Landlord sought possession under s21 Housing Act on the basis that the fixed term had expired.

How has the recent case changed matters?

Where a deposit has not been protected within 30 days of receipt, no s21 notice can be served. This was introduced by the Localism Act 2011. The Order implementing that Act suggested that the deposit requirements would apply to all tenancies in existence at that date, and all future ones.

The 2011 Act came into force on 6 April 2012. As a result, all deposits held at that point should have been registered with a recognised scheme no later than 5 May 2012 (30 days later), regardless of when they were received.

What difficulties do Landlords now face?

The 2011 Act itself does not make this position clear. It merely states that a deposit should be registered within 30 days of receipt. The 2011 Act does not specifically state that all deposits should be registered within 30 days of 6 April 2012 or receipt, whichever is the latter. If it had, the position would be clear.

What, if anything, can Landlords do now?

Landlords now face significant difficulties if they hold a deposit that has not been registered in time, or at all, even if it was received before April 2007. In order to evict a tenant, Landlords should return the deposit to their tenant in full or with such deductions as are agreed with the tenant in writing. Following this, if the tenant agrees, a new AST can be entered into with a new deposit being paid. That deposit must be registered in a recognised scheme within 30 days of receipt and the prescribed information given to the tenant. If the tenant does not agree to a new AST then the Landlord will be without the protection of the deposit, but would be able to commence accelerated possession proceedings for eviction of the tenant.

Does the Landlord still face any penalties for failing to pay the deposit?

Unfortunately, yes. Any Landlord who did not register a deposit within 30 days of receipt (or 6 April 2012) is potentially liable to pay the tenant compensation of up to 3 times the amount of the deposit. A court will determine the exact amount if the tenant issues a claim or counterclaim for this compensation. The fact that the tenancy has come to an end and the tenant moved out does not change this.

If you have any queries regarding this or any other legal matter please contact Joanne Green on 01332 225232.