Once upon a time, it was thought that Landlords had too much control over the security deposit held upon entering into a tenancy agreement of residential premises. To try and alleviate common problems of disputes at the end of the tenancy, the Housing Act 2004 was born to set out specific criteria and standards relating to various aspects of residential letting, including the Housing Health and Safety Rating System (HHSRS), Houses in Multiple Occupation (HMO), and the main focus of this article - the introduction of the Tenancy Deposit Scheme.
The Tenancy Deposit Scheme became compulsory for deposits taken on or after 6 April 2007 for all new, including renewed, assured short hold tenancy agreements, and this article is specific to that type of agreement, commonly known as the ‘AST’.
In light of recent case law, it seems that despite being generally regarded as a positive step, some Landlords remain unaware of the serious implication for ignoring the statutory requirements relating to the deposit.
First, decide which scheme to use - ‘custodial’ when the landlord pays the deposit in to the scheme to be held by the scheme administrator, or ‘insurance’ when the deposit is retained by the landlord and registered with the scheme on the basis that the landlord will adhere to any direction regarding the payment of the deposit to the tenant. The insurance will protect the tenant where the landlord does not do as directed.
Second, ensure that within 14 days of receipt of the deposit the requirements of the scheme chosen are met ie. register the deposit, and provide the tenant with the prescribed information detailed in the statute.
The sanctions for not complying with the two points above are heavy: the court has power to order that the deposit plus three times its amount has to be paid to the tenant(s) and further, where the tenancy is on-going, the landlord will not be able to serve a valid section 21 notice to regain possession until the deposit requirements are met.
Student tenants particularly seem to be well informed about the law and have learned to use it to their advantage. In quite a number of cases landlords have been penalized because they had failed to comply with the short time limits set out in the statute. However, landlords can take some comfort from the most widely cited case of Harvey -v- Bamforth which on appeal distinguished between the failure to comply with the provision of information and the time provision, with the failure to comply with the former being the only trigger for the mandatory penalties. In this particular case, whilst most importantly the landlord had registered the deposit within the 14 day time limit, the tenant had been provided with the prescribed information well outside that limit. The judge considered that the landlord was not in breach and was not liable to repay the deposit or pay the penalty.
Best practice is to ensure compliance with the 14 day time limits for registration of the
deposit and the prescribed information. With better awareness and full compliance, Landlords may achieve the’ happily ever after‘ ending to a tenancy they seek, the moral of the story being:
Don’t let a short term tenant become a long term problem.
For expert advice on all residential Landlord and Tenant related issues- telephone Dutton Gregory LLP on 01962 844333
