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Deposits, set for change?

The Localism Bill rather surprisingly (or not, depending on which side you are on) includes new sections which are designed to make amendments to the Housing Act 2004 and specifically to the tenancy deposit protection provisions.

The changes are intended to clarify the concept of ‘initial requirements’ and remove the late protection loopholes as discussed in Draycott v Hannells and Tiensia v Universal Estates. The Bill also hopes to remove the loophole of returning the deposit to the tenant in full prior to any proceedings and then asserting that s214(4) does not apply because in the absence of a deposit they can not be subject to the three times penalty.

If the changes are implemented tenants should find it far easier to pursue landlords or agents who have failed to protect their deposits and landlords will not be able to register the deposit and escape liability after the initial 14 day period.

From the landlords point of view the changes are an improvement because it is hoped that the law will be a little more certain with less grey areas and loopholes! The Bill will also be introducing a variable penalty rather than a fixed 3 times the deposit penalty. The tenant will be entitled to their deposit back or have it paid into the custodial scheme and then will also receive a further sum of money equivalent to not less than the deposit and not more than three times the deposit.

The benefit of this regime for the landlord is that when making an order the Court will consider why the landlord did not protect the deposit, what the landlord knew or should have known about his obligations, and how quickly he resolved the situation. This means that landlords that are still ignorant of the legislation may still be penalised but they may be subject to a more manageable penalty.

It is not certain or clear whether the amendments will make it into the legislation but given the case law surrounding this issue it is likely that the amendments will become law.

One Comment

  • Peter Smith 2nd March 2011 at 10:54 am

    Although some matters may be clearer and the penalty is variable, on the whole this is not good news for landlords.

    The harshness of the 14 days requirement remains, indeed now becomes far more potent, more especially because the landlord is responsible even if the deposit is paid to an agent.The landlord may be on holiday or sick and know nothing of the deposit paid, having no means of registering it within the 14 days.

    All this is made even worse because the whole bureaucratic nightmare is so unnecessary. The scheme should make it the responsibility of the TENANT to pay in their deposit to the scheme managers who then issue a certificate to the landlord – as do many established bond boards across the country.

    Then the LL does not handle the deposit and there can be no need for penalties. It can be a legal requirement for LLs to accept the certificates and illegal to take a deposit.

    So much simpler, so much less harsh and punitive. This new Government claims it wants to simplify bureaucracy but yet again it just stirs it up and makes it worse.

    I do hope that the landlords organisations will press for changes in this Bill.

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