If you are a landlord of an assured shorthold tenancy created after 6 April 2007 you must put your tenants deposit in a government-backed tenancy deposit scheme (TDP) within 30 days of receiving it. Within 30 days of placing in the scheme you must also provide the tenant with the prescribed information of the TDP.
What is a tenancy deposit scheme?
Under the provisions of the United Kingdom Housing Act 2004 every landlord or letting agent that takes a deposit for an assured shorthold tenancy in England and Wales must protect the deposit under an authorised tenancy deposit scheme.
They are Government backed accounts that protect tenants deposits, where tenants can often choose between Insured Protection where you hold the deposit and Custodial Protection where the account holds the deposit.
The scheme makes sure the tenant gets their deposit back when they move, subject to them looking after the property and paying their rent.
What happens if a landlord doesn't put a tenants deposit in a tenancy deposit scheme?
Failing to protect or provide the prescribed information within the allotted time means you can never conform to the legislation even if the deposit is later protected. You face not only a sanction of up to three times the deposit, but cannot serve a valid Section 21 notice to regain possession of the property under Section 21 Housing Act 1988.
How can a landlord regain possession?
A landlord in this situation has only two options to regain possession of the property:
- Satisfying one of the grounds of Section 8 Housing Act 1988, which is a slower more expensive process which can be easily defended by tenants.
- Returning the deposit to the tenant and serving a fresh section 21 notice.
In each of these scenarios, the landlord will still be liable for a claim for up to three times the value of the deposit but they will be able to regain possession of the property.
What happens if the tenant doesn't take the deposit?
A further complication is what happens if you don’t satisfy one of the grounds of Section 8 and the tenant refuses to take the deposit. The answer is unfortunately uncertainty and may lead to an indefinite inability to regain possession.
The court had an opportunity to clarify its position in the case Khuja v Chowdhury 2015 where a landlord failed to provide the prescribed information to the tenant before serving a Section 21 notice. At the first court hearing, the Section 21 Notice was held to be invalid. The landlord then offered to return the deposit to the tenant and when they refused to accept it, served a fresh Section 21 Notice. The court held that offering the tenant the deposit did not satisfy the requirement of returning the deposit so the subsequent notice was also invalid. The court held there was no evidence that the tenant unreasonably refused the landlord’s offer however, they did not say what effect an unreasonable refusal would have made to the validity of the notice.
What should landlords do?
Landlord’s should be cautious and should seek urgent legal advice about their compliance with legislation before serving a possession notice. Serving a notice without compliance with the legislation will mean your notice is invalid and may alert a tenant to the non-compliance and encourage them not accept return of the deposit.
Find out more
For further information please ask to speak to a member of our specialist team on 01392 207 020.