Tenancy Deposit Schemes – A new “lease” of life25 Mar 2019
William Ford, Associate solicitor in the Social Welfare department at Osbornes Solicitors follows up on his earlier articles which explained the requirements and penalties under the tenancy deposit.
On the 6 April 2012, the Localism Act 2011 amended the keys provisions of the Housing Act 2004 relating to tenancy deposits.
The previous position
Many practitioners (myself included) had been of the opinion that the original provisions had been intended to have a punitive effect on landlords who failed to comply with their obligations to ensure that a tenant’s deposit was protected within one of the three statutory schemes. That punitive effect came in the form of a mandatory penalty of three times the amount of the deposit if the landlord was found not to have protected the deposit or to have failed to provide the tenant with prescribed information about the deposit scheme and the tenancy. It would be fair to say that the legislation as drafted in its original form had left some doubt about exactly how the law relating to tenancy deposits would work in practice.
The issue came to a head in two cases: Tiensia v Vision Enterprise Ltd (2010)and Hashemi v Gladehurst Properties (2011). The decisions in both cases left practitioners in confusion as to whether the provisions in the Housing Act 2004 had any teeth. In Tiensia the landlord had protected the tenant’s deposit before the matter was heard by a judge at trial (as opposed to doing so within the 14 day time limit stipulated in the legislation or before the claim was issued) then the landlord would escape payment of the penalty of three times the sum of the deposit. In Hashemi the Court of Appeal considered whether a tenant could bring a claim for the return of their deposit and the penalty of three times the sum of the deposit once the tenancy had come to an end. Somewhat unexpectedly the Court of Appeal held that the grounds for bringing a claim cease to exist once the tenancy has ended.
The results in these cases made unlikely that a landlord would ever become liable for paying the penalty of three times the sum of the deposit. If the claim was made during the term of the tenancy all that was required from the landlord was to take action before the matter reached trial. If the tenancy was over, the tenant was barred from bringing a claim at all. Given that the vast majority of disputes in this area arise at the conclusion of a tenancy it seemed unlikely that many successful claims would be brought on behalf of tenants, and many commented that the Housing Act 2004 had been robbed of its teeth.
The key changes
Parliament has now responded with the Localism Act 2011 and it appears that they did intend for there to be mandatory penalties where landlord’s failed to protect their tenants deposits, or failed to provide the prescribed information to their tenants.
The key changes that apply from 6 April 2012 are as follows:
- Any deposit must be protected and the initial requirements of the scheme complied within 30 days of receipt by the landlord. This is an absolute requirement. If the deposit is protected at any time after the 30 days a claim can be brought by the tenant for the return of the deposit and a penalty payment from the landlord.
- Within 30 days of receipt of the deposit the landlord must provide the tenant with the prescribed information about the deposit scheme and the tenancy. Again, if this is not complied with, or is complied with after the 30 day period the landlord is open to a claim by the tenant for the return of the deposit and the payment of a penalty. There first two changes overturn the effect of the decision in Tiensia, in that the “better late than never” defence will no longer assist landlords.
- The Localism Act specifically states that the legislation applies in the case of tenancies that have ended which overturns the case of Hashemi. Once the tenancy has ended the Court may order the person who appears to the Court to be holding the deposit to repay all or part of it to the tenant. The use of the word “may” gives the Court some discretion regarding the return of the deposit in the scenario where the tenancy has ended. However, if a claim has been brought during the continuance of the tenancy the Court must either order the deposit to be repaid to the tenant or order that the person holding the deposit pay it into an authorised scheme.
- The Act has also permitted some discretion to the Judge in determining what the penalty for non-compliance should be. If there is non-compliance the Judge must make an order for the landlord to pay a penalty but the Judge has discretion regarding how much the landlord must pay. The amount of the penalty will range between the amount of the deposit and three times the amount of the deposit. This clearly allows the Courts some leeway to punish what they deem to be the worst offenders. How the Courts will apply the penalty in practice remains to be seen.
- If a landlord wants to end a tenancy by serving a s21 notice (giving the tenant two months to vacate the premises) they can only do so if at the time the notice is served the deposit has been protected, the initial requirements of the scheme complied with, and the prescribed information has been provided to the tenant. This means that if there is late compliance whilst this will not prevent a tenant bringing a successful claim, the landlord is not prevented from serving a s21 notice to end the tenancy. Alternatively, the restriction on not being able to serve a valid s21 notice can be avoided if the landlord returns the deposit in full (or an agreed lesser amount) , or a claim brought by the tenant for non-compliance has been concluded.
- The changes will take effect in respect of all new tenancies entered into after 6 April 2012. In respect of other assured shorthold tenancies entered into before 6 April 2012 (and to which the Housing Act 2004 applies ) if the deposit has not been protected or the prescribed information not provided in respect of such tenancies, the landlords for such tenancies have 30 days from 6 April 2012 to take the appropriate steps to protect the deposit and provide the prescribed information. Failure to do so means the landlord would be subject to the full range of penalties under the new rules.
The upshot of the change in the rules is very much a return to how some commentators had believed the provisions of the Housing Act 2004 were intended to operate, albeit with some modifications (in particular the range of penalty figures that can apply to a tenant’s claim). What is clear is that there is likely to be continued litigation in this area and landlords will need to be wary in ensuring that they promptly protect the deposits of their tenants in respect of any assured shorthold tenancy they enter into!
William Ford is an Associate at Osbornes Solicitors LLP specialising in property litigation work acting for both tenants and landlords. This publication is intended for general guidance and represents our understanding of the relevant law and practice applicable as at May 2012. In individual cases specific advice will need to be sought and Osbornes Solicitors LLP cannot be held responsible for any action made in reliance upon the content of this article.