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Insights

Paying the penalty for not protecting deposits

Posted on 16th March 2017 in Property Litigation

Posted by

Josh O’Neill

Trainee Solicitor
Paying the penalty for not protecting deposits

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 and within 30 days of placing in the scheme provide the tenant with the prescribed information of the TDP.

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.

A landlord in this situation has only two options to regain possession of the property:

  1. 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.
  2. 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.

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.

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.

For further information please ask to speak to a member of our specialist team on 01392 207020.

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