LandlordZONE® Briefing (LZ001) April 2015
After 6th April 2007 all security deposits taken by landlords must be protected in one of the approved Government Tenancy Deposit Schemes (TDP).
Landlords have a choice of schemes which they can use to safeguard each deposit and must inform the tenant using a special statutory notice (section 213) which informs the tenant which scheme has been used and the scheme rules, again within 30 days of receiving the deposit.
Currently in England & Wales (similar but separate schemes apply in Scotland and Northern Ireland) there are three approved companies running tenancy deposit schemes.
- Deposit Protection Service (Custodial and Insured)
- MyDeposits – including deposits that were held by Capita
- Tenancy Deposit Scheme
Landlords can accept valuable items (e.g., a car or watch) as a deposit instead of money, and they don’t need to be protected by a scheme.
Landlords are not obliged to take deposits and some don’t thereby avoiding these rules altogether. Deposits for lodgers, live-in landlords (where the landlord lives in the same building which are common law tenancies) and company lets, do not come under the TDP legislation – it only applies to Assured Shorthold Tenancies (AST).
The custodial scheme run by DPS is free to the landlord but involves paying the full amount of the deposit into the scheme.
The other schemes are insurance based which means the landlord retains the deposit but signs up to the insurance scheme and pays an insurance premium.
At the end of the tenancy the landlord pays all or part of the deposit back to the tenant if they both agree. When there is a dispute a scheme arbitrator decides on the issues and pays out accordingly. With insurance based schemes landlords must pay any disputed amount into the scheme prior to arbitration.
Since the introduction of the TDP schemes in 2007 there has been much confusion and lack of knowledge about the legal requirements which has got a lot of landlords into trouble. If the rules are not followed to the letter landlords cannot evict tenants using the no fault section 21 process, and they are subject to a fine of up to three times the deposit.
There has been further confusion because the original legislation was poorly drafted and several test cases have resulted in several amendments.
The latest amendments were incorporated in the Deregulation Act 2015, given Royal assent on the 26th of March 2015, and came into effect immediately. The current position as at April 2015 is as follows.
- Letting agents can now complete the deposit protection process on behalf of their landlords putting their own details on notices instead of landlord’s details.
- Where a deposit was given before 6 April 2007 and where the tenancy continued as a statutory periodic tenancy after that date (the situation in the Superstrike case) landlords do need to protect the deposit. If landlords have not already done so they have 90 days (until the 23 June 2015) following this amendment to protect and serve on the tenant the prescribed information. No penalty will apply if landlords in this situation comply now.
- Where landlords took a deposit and did not protect it, and the tenancy became periodic before 7 April 2007, then the landlord is not subject to a penalty. However, if those landlords in this situation wish to use the Section 21 process they need to protect the deposit and serve the prescribed information before 23 June 2015.
- Where landlords took a deposit after 7 April 2007, protected it and served the prescribed information during the initial fixed term, but did not do so again after the tenancy became periodic, they are now compliant. There is now no requirement to re-protect and re-serve statutory information when tenancies become periodic.
- Where the original deposit was protected and Superstrike related court claims are on-going these new rules will apply, but not if the case has already been determined.
Landlord Practice Guide:
- When you receive a deposit you must protect it in one of the schemes within 30 days.
- You must also service on your tenant the prescribed information (s213 notice) which you can download from the website of whichever scheme you use, also within 30 days.
- Always get proof of service. If the tenant denies having received it, any section 21 eviction process will fail.
- Always carry out detailed inventory checks and reports (ideally using an independent inventory clerk) ingoing and end of tenancy. Without this documentation you will not succeed in any claim for damage against the deposit.
- If you fail to comply with these rules the only way you will be able to use the Section 21 eviction process is if you can return the deposit to the tenant in full, but you will still be subject to a fine.
How to Win Deposit Disputes by Tom Derrett