Defining the nature of protection and the three schemes
Since April 2007 it has been a legal requirement for every landlord in England and Wales to protect any tenancy deposit received for an assured shorthold tenancy, in one of three recognised and approved national tenancy deposit schemes. Deposits taken before 2007 do not have to be protected unless the tenancy agreement is renewed after this date.
The main purpose for the introduction of these schemes was to ensure that (a) the deposit was securely held and not used for other purposes and (b) in the event of any dispute concerning deductions, a service was available to resolve any issues.
The Localism Act 2011 has introduced changes to the deposit scheme which affects both the landlord and the tenant in some circumstances to a significant degree:
For the landlord:
- A landlord must protect the deposit within 30 days of receipt (previously 14 days) and must also give the tenant prescribed information within those 30 days.
- Failure to comply with the strict timescale allows the court on application to impose a financial penalty of between 1 and 3 times the deposit sum according to the reasonableness of the landlord.
- Failure to register the deposit will result in the loss of the right to seek possession on Section 21 grounds at the end of the tenancy.
- Returning the deposit to the tenant may enable proceedings to be taken but see below.
For the Tenant
- Any Section 21 notice (requiring possession of the property at the end of the two month notice period) served by the landlord, who has not registered the deposit within the relevant 30 day period, will be invalid and cannot be relied upon for possession proceedings.
- Where a landlord seeks to rectify the situation by returning the deposit, it is possible to refuse to accept this thereby locking the landlord out of potential possession proceedings based on Section 21 grounds which will prevent the use of any accelerated possession procedure. The landlord will have to find other grounds to use for possession proceedings.
- A claim to the courts for compensation for the landlord’s failure to register is still possible where the deposit was protected after the 30 day period.
As with all changes and new legislation how the courts will interpret these has yet to develop. For any queries please do not hesitate to contact us on 08700434284.