This note reflects our understanding of the new Legislation and incorporates the implementation arrangements as outlined to us by the Department for Communities and Local Government. You are strongly advised to take your own legal advice if you are in doubt. Various provisions may depend on the way in which they are interpreted by the Courts.
QUESTIONS AND ANSWERS
Have you complied with the existing the rules if you already hold a deposit?
- You must have protected the deposit with one of the statutory schemes. Currently it does not matter if you protect it late so long as it is protected no later than the date of any Court hearing where a penalty is claimed (this will change once the new rules are in force and you fail to protect the deposit in time).
- You must have given the tenant/s the prescribed information. This can also have been given late so long as it is given by the date of any Court hearing claiming a penalty (again this will change once the new rules are in force). The tenant/s must have been given the opportunity of counter signing this information to confirm that it is correct. The tenant/s must also have been given the relevant schemes tenants leaflet. The prescribed information is not the same as the official receipt although this should be given to the tenant/s as well (with the My Deposits Scheme much of the prescribed information is included in their official receipt (but not all of it)).
- If someone other than the tenant/s (e.g. a relative) has paid towards the deposit that other person must also be given the prescribed information. Again it does not matter if it was given late. The tenant/s needs to be given the prescribed information as well even if they have not paid towards the deposit. The other person paying towards the deposit must also be given the relevant schemes tenants leaflet. All of these must also be given the opportunity of counter signing the prescribed information to confirm it is correct.
- IF YOU HAVE NOT DONE ANY OF THESE THINGS (INCLUDING GIVING THE PRESCRIBED INFORMATION TO SOMEONE OTHER THAN THE TENANT WHO HAS PAID TOWARDS THE DEPOSIT) YOU MUST TAKE ACTION TO CORRECT MATTERS WITHOUT DELAY AND IN ANY EVENT NO LATER THAN 30 DAYS AFTER THE START DATE FOR THE NEW RULES. IF YOU DO NOT THE NEW PENALTY/SECTION 21 RULES WILL APPLY TO YOU.
What do I need to do if I am holding a deposit but I have not complied with the current rules?
- You can still protect the deposit late. For the time limits see the Question “Have you complied with the existing rules if you already hold a deposit?”. and the Question “What is the situation where the tenancy has ended but I still hold a deposit?” The custodial scheme (DPS) will accept the deposit late and the other two schemes may well also be prepared to accept it late. You will also have to give the prescribed information – see below.
- You may quite possibly have protected the deposit but failed to give the prescribed information. Many landlords are unaware of this requirement. GIVE THE PRESCRIBED INFORMATION NOW. Try to get the tenant/s to sign a copy to confirm their agreement to its contents. It does not matter if they refuse to do so so long as you have given them the opportunity. You must also give a copy of the relevant scheme tenant leaflet to the tenant/s.
- If you are aware that someone else has paid towards the deposit beside the tenant/s also you must give that person the prescribed information (together with a copy of the relevant scheme tenants leaflet). You must also give them the opportunity of signing a copy to confirm the information on the form.
What is the situation where the tenancy has ended but I still hold a deposit?
- If the tenancy ends before the start date in April 2012 (i.e. the date when the new rules come into force) and either you have not protected the deposit or have not given the prescribed information (or not given it to someone else who has paid towards the deposit) or not given a copy of the tenant scheme leaflet no penalty can be sought.
- The date when the tenancy ends legally is the important date and this may not be the same as the date when the tenant/s move out.
- On the other hand, if the tenancy ends after the new rules come into force on
the start date in April 2012 onwards the penalty is still payable even after the tenancy has come to an end. This applies even if the deposit has been repaid. Tenants have six years in which to claim it – see below.
What happens when the tenancy ends if I have not complied – do I still have to pay the penalty?
- Yes – if the tenancy legally ends on or after the start date in April 2012 you will still have to pay the penalty if you have not complied with any of the new rules and it is claimed. This applies even after the deposit has been returned in full to the tenant/s with or without agreed deductions.
- If the tenancy has legally ended before the start date in April 2012 the penalty cannot be claimed.
How long does the tenant/s have in which to claim the penalty?
- Where a penalty can be claimed the tenant/s has six years in which to claim it. This period starts from the date which is 30 days after the landlord (or agent on behalf of the landlord) receives the deposit.
- This applies where the deposit is received under a tenancy which starts after the new rules come into force on the start date in April 2012. It also applies to deposits paid in relation to tenancies which already existed on this date but which have not ended before this date.
Help – I have missed the new 30 day deadline. What can I do?
- This can arise in one of two ways.
(i) I (or my agent) received a deposit on or after the start date in April 2012 and I failed to protect it or to give the prescribed information as required within the 30 days allowed.
(ii) I (or may agent) already have the deposit as at the start date in April 2012 but I have not protected it or have not given the prescribed information as required within 30 days after the state date (and the tenancy was still in existence legally on or after the start date in April 2012)
- You are not going to be able to avoid paying a penalty if it is claimed in the six years now allowed. The time limit for protecting the penalty/or giving the prescribed information cannot be extended.
- If you have not protected the deposit with one of the three statutory schemes within the 30 days time limit you cannot use Section 21 to end the tenancy (but you can use other grounds such as rent arrears) until one of the following things has happened:-
(a) You return the deposit in full to the tenant/s. or
(b) You agree with the tenant/s that you can make deductions from the deposit and you return the remainder to them (any such agreement should be in writing), or
(c) You are ordered to pay the penalty by the Court. This must be done through a Court order not by a private agreement as a private agreement to pay a penalty is not enough for this purpose. You could agree through the Court on the amount of the penalty for that purpose.
NB: In this situation you only get back your Section 21 rights; simply returning the deposit in full or as agreed does not stop you having to pay a penalty.
- If you have not given the prescribed information within 30 days the position is different. You lose your Section 21 rights at any time when the information (and the tenants leaflet) has not been given, but you can regain your Section 21 rights by giving the prescribed information (and the tenants leaflet) to the tenant/s and anyone else who has paid towards the deposit. However, you will still have to pay a penalty if the tenant/s claims it.
What are the time limits for protecting the deposit/giving the prescribed information under the new rules?
- 30 days from receiving the deposit.
- Remember it is 30 days from receipt. It does not matter whether or not the tenant/s (or all of them) have actually moved in. You could sign a tenancy agreement allowing the tenant to move in, in say two months time. You must protect the deposit/give the prescribed information within 30 days of actually first receiving the deposit.
- If you receive part only of a deposit you must still protect it/give the prescribed information. You cannot wait until you get all of it.
- It is the receipt by you (or by your agent) that matters. You should treat the date of payment as the date of receipt for these purposes. You cannot count the time from the date when the payment is cleared. However, if the payment “bounces” it will not be treated as being received.
- You have 30 calendar days. The date of receipt itself is included in the calculation. The date of protection will be the official date given to you by the scheme on the scheme receipt. For example, payment received on 7th April 2012 (the date you are given the cheque, receive cash, or payment is made to you by credit/debit card/other card). This means you must protect deposit by 6th May 2012. Bank holidays, Saturdays and Sundays are all included in calculation. Remember not all months are of the same length.
- When it comes to giving the prescribed information the crucial date is the date it is actually received by the tenants; not the date it is posted. You can give the prescribed information before the deposit is actually protected. The legislation says it must be given within 30 days of receipt and not 30 days from actually protecting the deposit.
- Importantly, if you tell the tenant/3 that you have protected the deposit with a particular scheme you must be aware that if the tenant checks and finds that the deposit has not been protected then the penalty provisions potentially kick in. Schemes may not confirm protection until payment of the deposit itself is received by them and cleared (DPS) or any required fees paid (My Deposits or TDS).
- Remember to allow enough time for any payment, e.g. a fee, to clear.
- If payment is made to your agent and then passed over to you to protect it it is the date the agent receives the money which triggers the need to protect the deposit.
What is the penalty?
There is always a minimum amount of once times the deposit but it can be as much as three times the deposit. The court has a discretion as to the amount and will take all the circumstances into account in deciding how much it has to be paid. Innocent mistakes may be punished less severely than deliberate failure to comply.
A penalty claim is a civil claim so it can be set off against any money which the tenant owes you as landlord, e.g. rent arrears. If you claim rent arrears and have not paid the deposit/given the prescribed information as required, the tenant can claim the penalty and set it off which could wipe out the amount of the arrears/put and end to your claim for possession.
What happens when the fixed term of the tenancy runs out/the tenancy is renewed?
- If a fixed term of a tenancy runs out or a tenancy is renewed, then the deposit may need to be re-protected. Likewise, if there is a change in the tenancy terms eg. the rent is increased or a new tenant is added. What happens very much depends on the scheme rules applicable to the scheme which is protecting the deposit.
- Remember that even if a deposit is protected initially (and the prescribed information is given as required at that time) should the deposit cease to be protected but it is still held by the landlord (or an agent) then the penalty provisions can apply. A claim can be made for the penalty if a tenant cannot get confirmation from any of the schemes that they are protecting the deposit. In this case, if a Court is not satisfied that the deposit is still being protected the Court has to order the penalty (between 1x and 3x the amount of the deposit). An application can be made in this situation even after the tenancy has ended.
- In the case of the custodial scheme, as the DPS are holding the deposit, it will continue to be protected.
- With My Deposits essentially you buy deposit protection for each tenancy. Under the scheme rules you must purchase new protection for each new tenancy. Therefore failure to comply can leave you exposed to the penalty. Likewise, if a tenancy is renewed in which case new protection must be obtained and paid for.
- TDS for agents basically covers all the deposits held by a member of the scheme unless the member elects not to cover a particular deposit.
- With Deposit Guard (the scheme operated for TDS by the RLA) at the end of a fixed term if the tenancy runs on, you must notify the scheme and re-protect the deposit. This applies even where the tenancy runs on a statutory periodic tenancy (but no fee is payable for the re-protection). On the other hand, under this scheme, if the tenancy is renewed or there is a change in the terms of the tenancy at any time (before or after the end of the fixed term) eg, the rent is increased, a new tenant is added or a tenant is removed then the deposit must be re-protected (for which a fee is payable).
Who is liable to pay the penalty?
It is the “landlord” who is liable to pay the penalty. The landlord does have an extended meaning under the legislation and can include an agent who is acting on behalf of the landlord. Normally, however, one would expect such a claim to lie against the landlord himself/herself.
How do I give the prescribed information?
- It is the responsibility of the landlord (or the agent) acting on behalf of the landlord) to give the information; not the schemes responsibility.
- The relevant legislation does not include provisions as to service of notices and as the notice is a legal requirement the provisions of Section 196 of the Law of Property Act 1925 do not apply (Section 196 does not apply to notices required to be given under statutory requirements). However, by analogy with the provisions regarding service of notices, (eg. Section 21 or Section 8 notices) there seems to be no reason why the parties cannot contract as to the method of service of notices and so long as these methods are followed, again, this should comply with the legal requirement to give the prescribed information.
- However, the best way is always to hand the notice over personally to the tenants. You should prepare two copies of the notice. The first is for them to retain and the second is for them hopefully to sign and confirm that they agree with the details and then to give back to you. You should, of course, keep this signed copy which the tenants have signed. Get all the tenants to sign if possible.
- Remember that if there is a third party involved who has paid towards the deposit you should follow exactly the same procedures with them. Also remember that if a third has paid the whole deposit you must also give the tenants notice (and get them to countersign) as well as the third party.
- You must sign the notice before it is handed over because it is your responsibility to certify that the particulars/information given in the notice is correct.
- The tenants only have to be given the opportunity to countersign. They are not obliged to do so but it is good practice to try to make sure that they sign the copy and give it back to you for your records.
- One notice can be addressed to all the tenants. Where the tenancy is a joint tenancy you do not need to give individual notices to each separate tenant under a joint tenancy.
- If you do not hand over the document personally then follow the procedures laid down in the tenancy agreement.
- Do not forget that it is the date of receipt which is important to comply with the 30 day period; not the date of posting. Therefore, allow sufficient time for posting so that they receive it within the 30 day period allowed.
How long should I keep my records for?
Bearing in mind that a penalty claim can be made for up to six years, it would be wise to retain records relating to deposits paid, copies of prescribed information etc for at least six years.