Tenancy Deposits: A Brief Summary

It has long been standard practice for landlords to take a deposit from tenants at the start of a tenancy agreement.  The deposit provides some protection to the landlord in the event of damage to the property or the tenant doing a disappearing act and leaving rent unpaid.

Some landlords however were in the habit of retaining deposits unreasonably.  In order to better protect tenants the law was changed in 2007 so that deposits for assured shorthold tenancies now have to be registered with an independent scheme (commonly referred to as “protecting” the deposit).  In addition various pieces of information need to be provided to the tenant in order to make the deposit protection valid.  The consequences to landlords of failing to properly protect a deposit are wide ranging and serious.

However, despite this legislation having been in place since 2007 there remain landlords who are seemingly unaware of their obligations when it comes to tenant deposits.  I have represented a number of such landlords, all of whom simply did not know the responsibilities upon them or the risk they ran in failing to protect deposits.

Whether you are a landlord or tenant the following brief summary will, I hope, be useful in outlining the key points of the deposit protection legislation.

Protecting a Deposit

Landlords are required to protect deposits with an authorised scheme within 30 days of receiving payment.  There are two “versions” of deposit protection: the insurance-based one where the landlord must register the deposit but can keep the money in their own bank account or the custodial version where the deposit is retained by the authorised scheme itself.

As well as registering or paying in the deposit (depending on which version of the scheme is used), landlords must provide certain information to the tenant within 30 days.  This “prescribed information” must include details of the deposit, the property, the identity of the landlord and the tenant’s rights under the legislation.

Whilst some landlords may well see the requirements as an additional, unnecessary burden upon them the purpose of the legislation is to help landlords as well as tenants.  If there is a dispute between the landlord and tenant about damage, an independent adjudicator will consider representations from both sides and decide how much of the deposit should be released to the tenant.

The Consequences of Non-Compliance

Where landlords often fall down is in either failing to protect the deposit at all or within the required 30 days, or failing to provide the necessary information to the tenant.  If a landlord hasn’t fulfilled their obligations then any section 21 Notice served on the tenant (the first step to regaining possession without having to give a reason for wanting the property back) will be invalid unless and until the deposit is repaid.  This of course leads to delay for the landlord and very often mounting costs if the tenant is not paying rent.

In addition, the landlord may well find themselves in receipt of a claim from the tenant for statutory compensation under sections 214 & 215 of the Housing Act 2004.   If the court finds that the landlord didn’t comply with the deposit legislation it is empowered to award the tenant up to 3 times the amount of the deposit in addition to the deposit sum itself.

Likely Future Changes

There are likely to be yet further changes to deposit-related legislation, this time in the form of the proposed Tenant Fees Bill which is currently proceeding through Parliament. The Bill aims to provide further protection for tenants and in particular will limit the fees payable by tenants when taking on a new tenancy.  The Bill also looks at deposits:  it had been proposed that deposits should be limited to 4 weeks’ rent although after lobbying from interested parties that has now been raised to 6 weeks.

It can therefore be seen why landlords must take their obligations seriously and how important it is to keep up to date with legislation.  I have dealt with many cases where a landlord would have saved money in the long run by seeking legal advice at an early stage.  I and other members of the civil team in Chambers can assist with advice and the drafting of documents at any stage of a tenancy and can often accept instructions on a “direct access” basis.