LANDLORDS BE A WARE !

Avoid Being Caught Out By Tenancy Deposit Scheme Rules

If you are a residential landlord and you don’t know by now what a Tenancy Deposit Scheme is then you should read this article very carefully.  Even if you think you know the legal requirements for tenancy deposits you should read carefully and make sure that you are complying, because the law is rigid and the courts seem to be applying it rigidly, often to the detriment of landlords, as this article will demonstrate.

Tenancy Deposit Schemes (TDSs) are no longer new, they have been around for a few years now, since 6^th April 2007. The rules, which appear in Chapter 4 part VI of the Housing Act 2004 sections 212 to 214 require all landlords of assured shorthhold tenancies to protect deposits in one of the government approved tenancy deposit schemes (TDS), with penalties if they fail to do so. 

Despite the financial risks run by landlords who do not lawfully protect the deposit it is estimated that a large proportion of landlords know nothing about TDSs, or have simply not bothered to comply with the TDS rules.  There has been a wave of cases through the county courts recently which should act as a warning to non-compliant residential landlords to sharpen up their procedures in this regard.

What are the Rules?

The requirements of sections 212-214 Of Chapter 4 of the Housing Act 2004 are not set out here for you in full, you can find the Act itself on the internet. Alternatively an easy to understand explanation of the requirements and contact details for the 3 government authorised TDS schemes can be found on the direct.gov.uk website. 

In summary, the Act requires landlords of shorthold tenancies to protect a tenant’s deposit in one of the authorised TDSs. This must be done within 14 days of receiving the deposit monies, and within the same 14 days the tenant must be provided with certain information in relation to how and by whom the deposit is being held.   If at the termination of the tenancy there is a dispute as to the return of the deposit the TDSs have arbitration procedures that landlords and tenants can use, which may help them to resolve any dispute without the need for court proceedings. 

S214 of the Act sets out the serious consequences for landlords of non-compliance; if the court finds that there has been non-compliance it MUST (no discretion is allowed by the Act) order the landlord to return the deposit AND pay the tenant 3 times the value of the deposit.  The landlord would also be ordered to pay some of the tenant’s costs of making the claim.

Cases From The Courts

Claims under s214 for 3 times the tenancy deposit plus return of the deposit can be brought on their own at the tenant’s instigation, but they can also be brought against landlords as counterclaims against claims for unpaid rent or for damage to the property.

In the most widely publicised case of recent months which was reported on by Inside Housing and the Residential Landlords Association tenants trashed and then abandoned a city centre apartment, owing three months rent.  They had damaged walls, fixtures and fittings and furnishings were burnt and stained. The landlord sued the tenants for the rent and damages. She was successful in her claim, being awarded £4,413 by the court.  However, the tenants had counterclaimed for the landlord’s failure to protect their deposits in a TDS. The landlord’s  pleasure was short lived as she was ordered to pay the tenants £4507.82, so ended up £94.82 out of pocket to the tenants. The case is apparently being taken to appeal with the support of the Residential Landlords Association, on the basis that the court misread the provisions of the Housing Act 2004.

It is no good to wait until you think there might be a problem to pay the deposit into a scheme, as the next case demonstrates.

The Legal Action Magazine and website reports a case that was decided by Haverfordwest County Court in May 2009.  Ms Harrington, a landlord with a tenant on a 12 month assured shorthold tenancy from May 2008 had taken a £600 deposit which was not paid into a TDS.  Ms Harrington accepted notice to terminate the tenancy early and possession was given in March 2009. She did not return the deposit to the tenant (presumably retaining it to cover the cost of damage). The tenant issued court proceedings for return of the deposit.  Ms Harrington counterclaimed for damage and only at that point did she pay the deposit into a TDS.  The court found that she was not entitled to avoid the repercussions of s214 of the Act by paying into the TDS at such a late stage. She was ordered to return the deposit to the tenant also to pay to the tenant 3 x the deposit.  This is a salutary lesson that the 14 day rules are strict, and the court will not exercise any discretion. If the time limits are not complied with, you will fall foul of s214.

Not using a TDS can also affect your chances of obtaining possession.  If you have not protected the deposit in a TDS before you serve a section 21 notice seeking possession, you cannot then rely on that notice to obtain a possession order. This situation is most relevant for landlords who carry out the practice of serving a s21 notice on their tenants as soon as their assured shorthold tenancy has commenced. This is a perfectly valid and sensible protective measure for a landlord, because it means that they can be certain that they will not have to wait the 2 month s21 notice period at the end of the tenancy, if they require possession they can go straight into possession proceedings. This is all very well, but if the s21 notice is served so early that it is served prior to the landlord even protecting the deposit and giving the tenant the required TDS information, then the s21 notice will not be valid. Landlords might not discover the problem until they have wasted money on starting possession proceedings, only to have the tenant defend the claim on the basis that the deposit was not protected.

Warning

The above cases have only been dealt with in the lower courts, and no TDS cases have yet reached the higher courts, so the decisions above are not cast-iron authority for the law in this area. Indeed, there are other county court decisions from around the country which contradict those above. However, the cases above do serve as a clear warning to landlords who want to eliminate as much risk as possible to get themselves set up with a TDS and make sure they are complying. If you are reading this article and realise that you are holding deposits that are not in authorised TDSs it might help you to remedy this situation even at this late stage (although seek advice if the tenancy commenced more than a few years ago as there may not be a requirement to do so).

For letting agents, to avoid any confusion as to who can be held liable for failure to protect the deposit, the agreement between the agent and landlord and also the tenancy agreement should make clear in their agreements who is going to be responsible for registration of the deposit with an authorised scheme. 

The government authorised tenancy deposit schemes are The DPS, Mydeposits, and The TDS, all of which have websites.

For further advice in relation to the above contact Sarah Coates-Madden of Sandersons Solicitors.

Tel:       01482 324662

Fax:      01482 860118

e-mail:  scoatesmadden@sandersonssolicitors.co.uk

 Source:  The Federation of Small Businesses e-newsletter, September 2009

                Humber Landlords Association, September 2009