Failed to protect a deposit – how can I fix it?

What is the tenancy deposit scheme?

The various tenancy deposit schemes (the “Schemes”) came into being as part of the introduction of Schedule 10 to the Housing Act 2004 (“HA 2004”) for all assured shorthold tenancy agreements in England and Wales that started after 6 April 2007.

Schedule 10 to the HA 2004 requires a Landlord to register the deposit in a Government approved deposit scheme within the first 30 days of receiving the tenant’s deposit, and to provide the tenant with the details of the tenancy deposit scheme within the same period.

Once the deposit has been protected the Landlord will receive a Deposit Protection Certificate which sets out the specified information. Whilst there is no prescribed format to provide tenants with the details of the protected deposit, the Deposit Protection Certificate sets out all the relevant information. We recommend that Landlords provide their tenant with the Deposit Protection Certificate to meet their obligations (i.e., within 30 days of receiving the deposit).

The deposit must remain in the protected scheme for the duration of the tenant’s occupation of the property. At the end of a tenancy, once a tenant has vacated the property a Landlord must notify the tenant within 10 days if there are any deductions to be made from the deposit. If the tenant does not have any objections, then the deposit can be released accordingly. The free arbitration service of the deposit protection scheme will deal with any disputes.

What Schemes can a Landlord use to protect a deposit?

The Schemes approved by the Government are:

1. MyDeposits;
2. Tenancy Deposit Scheme; and
3. Deposit Protection Service.

What happens if a deposit is not protected?

If a Landlord fails to protect the deposit or provide their tenant with the deposit protection information within 30 days of receiving the deposit, then the Landlord is in breach of their obligations. This means that the tenant is entitled to make a claim for the return of the deposit, plus statutory compensation of a minimum additional sum equivalent to the value of the deposit, up to a maximum of 3 times the value of the deposit.

The only way to resolve the breach is to return the deposit to the tenant.

However, even if the deposit is returned to the tenant this does not mean that the tenant is prevented from making a claim for compensation. It may, however, improve the Landlords’ prospects of successfully defending the claim if the deposit has been promptly returned. This is because the Court has discretion as to what sum, if any, to award as compensation. The Court can therefore take the circumstances surrounding the breach, and the action taken by the Landlord to remedy the breach, into consideration.

It is imperative that Landlords take urgent action to resolve the breach once they are aware of it.

How does a deposit breach affect a Section 21 Notice?

If a Landlord fails to correctly protect the deposit, then they cannot serve a valid Section 21 Notice until the deposit has been returned to the tenant.

In matters where a tenant accepts return of the deposit, then a Landlord can immediately proceed with serving a valid Section 21 Notice; so long as all other prescribed information has been provided to the tenant (i.e., Energy Performance Certificate, Gas Safety Certificate and the Governments How to Rent Guide).

However, where a tenant refuses to accept return of the deposit, a Landlord will not be able to serve a valid Section 21 Notice. This has the potential to seriously complicate a potential claim for possession of a property because a Landlord will only be able to progress such a claim based on a Section 8 Notice, which can only be served if there are relevant grounds to do so. For proceedings based on a Section 8 Notice the Court will list a hearing which will likely be more costly than Section 21 Notice proceedings and often far longer, due to the current Court lead times to list a hearing (which can be anywhere from 2-8 months).

We often recommend using the accelerated track for possession in matters where a tenant is not paying rent to minimise further loss because the route to a possession order can be quicker, and more cost proportionate. Generally speaking the accelerated track is an attractive option for Landlords, however it cannot be used if a valid Section 21 Notice has not been served. Returning the deposit in matters where a breach has occurred is therefore extremely important, not only because of the potential compensation claim that could be made, but because of the effect it can have on the route to successfully recovering possession of property.

We strongly recommend that Landlords keep a record of a tenant’s bank details from the outset of the assured shorthold tenancy agreements so the above circumstance can be avoided. Of course, this circumstance can be entirely avoided by correctly protecting the deposit.

Conclusion

The Law that stipulates a Landlord’s obligation to protect a deposit is clear and straightforward. As set out above, the consequences for failing to comply with the obligations are severe, and somewhat draconian.

If a Landlord fails to protect the deposit, then significant and often costly problems can arise later down the line. To avoid any such problems, a Landlord should always correctly protect the deposit and provide the specified information within the relevant period. In instances where this has not happened, we strongly recommend that a Landlord seeks legal advice in respect of their options to resolve the matter.

How can Ellis Jones help you?

Ellis Jones have a specialised Dispute Resolution team available to  assist both Landlords and Tenants. If you are a Landlord that would like further understanding of how the Scheme might affect you and the possession action you can take, or you are a tenant faced with a Landlord that is applying pressure on you in respect of rent arrears, we would be happy to discuss your case and see if we are able to assist. Should you wish to discuss this further, please do not hesitate to contact our specialist Dispute Resolution team on 01202 525333 or emma.bowditch@ellisjones.co.uk.

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At Ellis Jones we have a dedicated team that specialise in landlord and tenant disputes. Our experts have a wealth of knowledge in disputes relating to termination of tenancies, service charge disputes, orders for possession, forfeiture, rent arrears and rent disputes.

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