Tenant Deposits and the Localism Act 2011

Since the commencement of the Housing Act 2004 in April 2007 landlords who let their residential properties on an assured shorthold tenancy have to comply with the provisions of that Act and ensure any deposit taken must be paid into one of the prescribed tenancy deposit schemes. 

Currently, the consequences of a landlord’s failure to do so are serious: the landlord is prohibited from recovering possession under the accelerated procedure, and the tenant can issue proceedings for an order that the landlord comply and pay to the tenant a penalty equivalent to three times the deposit.

Limited situations when the court will not award this penalty where established by the Court of Appeal decisions in Gladehurst Properties Ltd v Hashimi [2011] EWCA Civ 604 (19 May 2011) and Tiensia v Vision Enterprises Ltd [2010] EWCA Civ 1224. 

Consequently, at the moment the Court will not order the penalty to be paid where the tenancy has ended, or where a tenancy is continuing provided the deposit is dealt with in accordance with one of the authorised schemes prior to the date of the hearing.

However, that will not be the case once the Localism Act 2011 comes into force.  Section 184 contains amendments to the provisions relating to tenancy deposits which may override the Gladehurst and Tiensia decisions and the penalties will apply equally after the end of the tenancy. 

The following new provisions will apply:

• The landlord will have 30 days to protect the deposit and provide the relevant information to the tenant.  (Currently only 14 days). 
• The court will have discretion to set the financial penalty at between one and three times the deposit.  (Currently there is no discretion on the amount and if awarded must be three times the deposit).  There is no guidance as to how the court should exercise its discretion but it is likely it will look at all the circumstances.  These will probably include the length and any reason for the delay, and the effect of the delay, if any, upon the tenant. 

All landlords’ best course of action is to comply with the tenancy deposit requirements from the outset to avoid uncertainty and penalties. 

The risk of the potential penalties should outweigh Landlords’ main concern that they will encounter difficulties recovering the deposit in the event of a dispute at the end of the tenancy.  Those concerns are unfounded provided they use a detailed tenancy agreement that includes clear provisions for the obligations of both parties, together with a detailed itinerary signed by the tenant and including photographs. 

Of the three alternative prescribed deposit schemes by far the most straightforward for landlords with only one or two properties, is the Deposit Protection Service (DPS).  The whole deposit is held by DPS until the end of the tenancy, there are no fees to pay, and it can be administered online via their website, www.depositprotection.com.

Kitsons LLP charge £185 plus VAT to draft a comprehensive tenancy agreement, fixed fees to serve notices £105 plus VAT (section 8), £80 plus VAT (section 21), and £350 plus VAT to commence accelerated possession proceedings.   

If you would like to discuss the above, or require further information please contact the Landlord and Tenant Team by clicking here or telephoning 01803 202020