DEPOSIT PROTECTION FROM MARCH 26TH 2015 ONWARDS

Introduction

Deposit protection legislation is meant to be relatively simple and clear for landlords and tenants. The deposit should be protected within 30 days of receipt and the landlord should supply the tenant with all of the scheme's prescribed information within that same window. If they do not do this, then the tenant is entitled to chase the landlord for the penalties and cannot be evicted through a Section 21 until the deposit is returned to the tenant.

Unfortunately for landlords, case law made a simple system confusing. Many landlords found themselves caught in situations where they thought they were complying with the law until a new case turned the legal position on its head. Most notably in Superstrike v Rodriguez and Charalambous v NG which resulted in landlords having to comply with a scheme that did not even exist when their tenancies began. For those where the tenancies went periodic after April 6th 2007, the landlord would even be open to the financial penalty for non-compliance.

The Deregulation Act 2015 has fortunately clarified deposit protection for landlords and tenants. This guide will cover the changes, discuss some key deposit terms and outline what landlords must do now to protect the deposit correctly.

What is a deposit?

A deposit is money taken by the landlord to cover any of the tenant's liabilities or obligations that arise from the assured shorthold tenancy. This cannot be taken in the form of property (e.g. a rolex watch or a car). If money is being held for this purpose then it is a deposit, regardless of what it is called (e.g rent in advance), and it needs to be protected in a scheme if it is an assured shorthold tenancy.

The deposit will count as being received by the landlord on every subsequent fixed term renewal or when the original tenancy turns into a statutory periodic tenancy.

What documents are required to protect the deposit properly?

The documents required will depend on which of the four different schemes is chosen. The landlord must always provide the information that the individual scheme's rules require and the prescribed information to all the people who paid towards the deposit, the tenants and any guarantors. Consult your tenancy deposit scheme as to their additional requirements when you do protect your deposit. You can also refer to our tenancy deposit checklist for reference.

Penalties for not complying with the deposit protection

Penalty - landlords who fail to protect the deposit or give the prescribed information within 30 days of receipt will be liable to pay the tenant between 1 and 3 times the deposit as a financial penalty and the court can order they return the deposit. The landlord cannot serve a Section 21 notice until the deposit is returned. The tenant can claim the financial penalty for up to 6 years after the deposit was not protected.

Section 21 rights where prescribed information is not given - If the deposit has been protected but the prescribed information has not been served within 30 days of the receipt of the deposit, then no Section 21 will be valid until this has been served. If the landlord does not do this within 30 days of the start of the tenancy then they can still get their Section 21 rights back by serving the prescribed information. However, they will be open to the financial penalty for not providing it within the first 30 days.

Deposits on tenancies that went periodic before April 6th 2007

Where a deposit was taken before April 6th 2007 and the tenancy became a statutory periodic tenancy before April 6th 2007 and there has been no new fixed term since that time, then the landlord is not open to the financial penalties. However, they cannot serve a valid Section 21 until the deposit has been protected in one of the government approved schemes with the prescribed information served to all relevant parties. Alternatively they can also serve a valid section 21 when the deposit has been returned to the tenant in full or with any deductions that the tenant has agreed to.

Deposits on tenancies started before April 6th 2007 which were replaced with a new agreed fixed term

If a new fixed term was given to the tenant after April 6th 2007 then the deposit should have been protected within 30 days of the new fixed term or by May 6th 2012 if it was before this date. The landlord is open to the penalties if the tenancy was still ongoing and the deposit was still unprotected after this.

Deposits on tenancies that started before April 6th 2007 and went periodic after April 6th 2007

Provided no new fixed term has been given since the tenancy went periodic, the landlord had until June 23rd 2015 to protect the deposit within one of the government approved schemes and serve the scheme's prescribed information. If this was done a Section 21 notice can be served on the tenant and the landlord will not be open to any potential financial penalties.

Once this has been done the landlord should not have to serve the prescribed information again for any further fixed terms but please do check with your tenancy deposit scheme as there is still a requirement to comply with the individual scheme's rules.

After June 23rd 2015, if the landlord has still not protected the deposit, then to regain their Section 21 rights, the landlord should return the deposit to the tenants either in full, or with such deductions as are agreed between the tenant and the landlord.

If a new fixed term was given to the tenant after April 6th 2007 then the deposit should have been protected within 30 days of the new fixed term or by May 6th 2012 if it was before this date. The landlord is open to the penalties if the tenancy was still ongoing and the deposit was still unprotected after this.

Deposits taken from April 6th 2007 - April 5th 2012

The landlord was previously required to protect the deposit within 14 days of receipt. However, thanks to the Court of Appeal, landlords could protect the deposits as and when a tenant chased them for the deposit penalty. The result of this was an amendment under the Localism Act 2011. This amendment gave all landlords, who had taken a deposit and failed to protect it before April 6th 2012, an amnesty period of 30 days within which to protect these deposits and serve the prescribed information.

If these deposits were still unprotected by May 6th 2012 then the landlord is open to the financial penalties and is not able to serve a Section 21 notice until the deposit is returned.

If a landlord complied with the deposit protection legislation within the 14 days or by May 6th 2012 and there have been no significant changes to the details of the tenancy since then, the landlord should still be compliant with the deposit protection legislation and no further prescribed information needs to be given from now on. Please do check with your deposit scheme that the deposit is still protected however.

Please note that if your deposit was taken before April 6th 2007 but a new fixed term was agreed in the period April 6th 2007 - April 6th 2012 then the deposit should have been protected by May 6th 2012 and the prescribed information served to the tenant and anyone who paid to the deposit.

If the tenancy had already ended by April 6th 2012, then the financial penalty does not apply and the landlord cannot be chased by the tenant for it.

Deposits taken after April 6th 2012

The landlord is required to protect the deposit within 30 days, comply with the scheme's requirements and serve the prescribed information to all the relevant parties in that same 30 days. Provided this is done, and there are no significant changes to the tenancy, then the landlord should not have to provide any further prescribed information to the tenant while they reside at the property.

Where the prescribed information is served after the first 30 days but within the first term of the tenancy then the landlord will still be open to the financial penalties. However, they can serve the prescribed information to regain their rights to serve a section 21 notice.

Where the landlord has failed to protect the deposit and it is still within the first or later fixed term, they can protect the deposit and serve the prescribed information to regain their rights to serve section 21s and avoid the financial penalties in any subsequent tenancy. This must be done within 30 days of the start of the fixed term commencing or the statutory periodic tenancy starting. However, they are still liable for the financial penalty in the first fixed term and will not be able to serve section 21s until the tenancy goes periodic or the tenancy is renewed, and even then only so long as the tenancy is protected (and prescribed information is given) within 30 days of the renewal date.

Please note that if your deposit was originally taken before April 6th 2007 and a subsequent fixed term was agreed after April 6th 2012 and this was the first fixed term after the original, then the deposit should have been protected within 30 days and the prescribed information served at the time.

How long does the tenant have to chase the financial penalty?

Tenants are bound by the statutory limit of 6 years on chasing a landlord through the small claims court. This applies from the moment that the breach occurs. This means that tenants have 6 years and 30 days from the receipt of the deposit in which to chase the landlord for the financial penalty.

To complicate matters somewhat, the RLA takes the view that the statutory limit is also reset by the two amnesty periods that the Localism Act and the Deregulation Act have provided to landlords.

For those caught by the Localism Act the following applies. Where a tenancy deposit was taken between April 6th 2007 and April 6th 2012 and the deposit was unprotected afterwards, the landlord can be chased for the financial penalty up until May 2018. For tenancies that had come to an end before

Under the Deregulation Act, landlords who took a deposit before April 6th 2007 and then had their tenancy go statutory periodic after this date have until 23rd June 2015 to protect the deposit and provide the information. If they don't they can be chased for the deposit up until the end of June 2021.

Who do you serve the prescribed information on?

Please note the prescribed information must be served on all the tenants but also on anyone else who has contributed towards the deposit.

How do I protect a deposit?

Landlord & Investment Show
Martin Co
Envirovent
Landlord Broadband

Help us improve this page - rate how helpful you found it:

Thank you for your feedback. How could we make the page more helpful?

Thank you for your feedback.

Share this page