Since 6 April 2007, landlords of assured shorthold tenancies have been required to protect their tenants’ deposits with a tenancy deposit scheme and give prescribed information to the tenant and any other relevant people. A relevant person is someone who paid the deposit to the landlord on behalf of a tenant.
The aim of tenancy deposit schemes is twofold:
- To ensure that a tenant’s deposit will be protected and returned to the tenant at the end of the tenancy; and
- To resolve disputes between landlords and tenants relating to the return of the deposit.
Since 2007, the rules for protecting deposit have evolved as a result of case law and statute. This article reflects the law at the date of writing.
Deposit protect scheme
A deposit is usually paid to a landlord before the tenant moves into a property. However, a deposit is broadly defined in law as “money which is paid to the landlord as security for the tenant’s liabilities in connection with the assured shorthold tenancy.” Therefore, a deposit doesn’t necessarily need to be called a deposit in order for it to be one. Examples of money that has been held to be a deposit include cleaning fees paid at the outset of the tenancy but returned to the tenant at the end, if the property did not require cleaning.
Prescribed information is the term used for the details that must be given to the tenant and any other relevant people. It includes:
- Name, address, email, phone and any fax number of the tenancy deposit scheme;
- Any information given in any leaflets supplied by the scheme to the landlord that explains his or her obligations to protect the deposit and provide the prescribed information to tenants;
- Procedures that apply under the scheme by which a deposit may be paid or repaid to a tenant at the end of the tenancy;
- Procedures that apply if either the landlord or a tenant cannot be contacted at the end of the tenancy;
- Procedures that apply under the tenancy deposit scheme if a landlord is in dispute with a tenant over the amount of deposit to be repaid;
- Facilities available under the scheme for resolution of a dispute relating to the deposit, without recourse to litigation;
- Amount of deposit paid;
- Address of the property to which the tenancy relates;
- Landlord’s name, address, email, phone and any fax number;
- Tenant’s name, address, email, phone and any fax numbers, including details that should be used by the landlord or TDS to contact the tenant at the end of the tenancy;
- Name, address, email, phone and any fax number of any relevant person;
- Circumstances when all or part of the deposit may be retained by the landlord, according to the terms of the tenancy agreement.
Strict limits apply to the time in which a landlord must give the prescribed information to the tenant (or other relevant people):
- If the tenancy was entered into on or after 6 April 2007, the prescribed information must have been given to the tenant within 14 days of the landlord’s receiving the deposit;
- If the tenancy was entered into on or after 6 April 2012, the prescribed information must be given to the tenant within 30 days of the landlord’s receiving the deposit.
Although the requirement for deposits to be protected did not come into force until 6 April 2007, the landlord must still comply with the TDS rules stated above if a fixed-term tenancy was entered into before 6 April 2007 and came to an end on or after 6 April 2007 and either:
- A new fixed-term tenancy was entered into after 6 April 2007; or
- The tenant still lives at the property but no further written agreement has been entered into.
Tenancy Deposit Scheme providers
There are two types of TDS:
- Insurance scheme: this allows landlords to keep deposits as long as they pay a premium to the scheme provider, who in turn pays to protect the deposit from misappropriation by the landlord;
- Custodial scheme: Custodial schemes require a landlord to pay the deposit into a separate designated account held by the scheme provider.
There are currently three TDS providers:
- Deposit Protection Service: offers both an insurance and custodial scheme, and is generally used by landlords and letting agents;
- My Deposits: offers an insurance-based scheme and is intended for landlords;
- Tenancy Deposit Scheme: offers an insurance-based scheme aimed at letting agents.
If there is a dispute about who should receive the deposit at the end of the tenancy agreement, all the above schemes provide free dispute resolution services to landlords and tenants. When disputes arise, the TDS provider makes a decision about who should receive the deposit or in what shares it should be divided, based on written evidence sent by both landlord and tenant.
What are the consequences for non-compliance?
If a deposit has not been protected and the prescribed information has not been given to the tenant within the above time limits, the landlord could be prevented from serving a notice under Section 21 of the Housing Act 1988 for regaining possession of the property. In practical terms, it means that landlords may be prevented from getting their properties back from tenants (when the tenants are not in breach of the terms of the tenancy agreement).
Even though landlords are not required to protect deposits for tenancies entered into before 6 April 2007, the Court of Appeal recently decided that a landlord cannot serve a Section 21 notice to end a tenancy that was entered into prior to April 2007 and for which a deposit was paid but not protected.
Tenants who are wise to the TDS rules may also bring claims against landlords for non-compliance. In these circumstances, the court can order that the landlord returns the deposit to the tenant and can make the landlord pay the tenant between one and three times the amount of the deposit in compensation. Claims can be brought by tenants even after the tenancy agreement has come to an end.
If you would like advice on any of the issues raised in this article, on deposits or on landlord and tenant issues in general, please contact Nichola Board in our Civil Litigation team on 0117 394 5034 or email [email protected].