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The Localism Act

Most landlords and agents are aware of the current provisions relating to tenancy deposit protection under the Housing Act 2004. Many will also be aware of the damage that has been done to the provisions by the many, many, many, many court decisions. As a reminder two of the Court of Appeal decisions:

Tiensia v Vision Enterprises Ltd (t/a Universal Estates) – a landlord can protect the deposit at any stage, even if more than 14 days have elapsed since it was received, without penalty as long as they do so before the case comes before a court.

Gladehurst Properties Ltd v Hashemi – a tenant could not bring a claim for an unprotected deposit at all once the tenancy was over.

The government has therefore resolved the problems posed by these cases by radically amending the legislation. This is being done by way of the Localism Act, which should come into force on or around the 6th April.

The New TDP Legislation
The changed legislation has three components:
1. Alteration of the current 14 day timescale for protecting the deposit;
2. The closing of current loopholes exposed by the courts;
3. Change to the current regime of penalties.

1. Under the old current provisions the landlord is obliged to protect the deposit and provide the prescribed information to the tenant and any relevant person within 14 days of receipt, however this 14 days will be changed to 30 days from the date of receipt.

2. The decisions in Tiensia and Hashemi will no longer assist landlords who have failed to register the deposit within the 14 days. Therefore, a landlord will be obliged to protect the deposit within 30 days and if he fails to do so he is in breach of the legislation and the tenant can immediately issue proceedings against him or his agent. Protection after 30 days, or after issue of proceedings, is not sufficient to cure the landlord’s failure. Landlords will not be able to argue the Hashemi point once the tenancy is over either as tenants are also going to be entitled to issue proceedings once the tenancy has ended. The so-called ‘must also’ loophole, which allowed landlords to return the deposit to a tenant before a hearing and then assert that the court could not return that money to the tenant and therefore it could not ‘also’ make an award of the three times penalty, has also been closed by the simple expedient of removing the word ‘also’ from the text of the legislation.

3. The draconian three times the value of the deposit penalty will also cease. The court will have a discretionary power to award a penalty of between one and three times the value of the deposit. Therefore, a landlord who has protected the deposit as soon as they became aware of the problem and acted reasonably will be penalised at the lower end of the scale while landlords who have been less cooperative will find themselves penalised at the top end of the scale. If a landlord has however failed to protect they will be liable for not less than a penalty of one times the deposit.

What has changed?
This all means that the Tiensia and Hashemi decisions will not have any force after the 6th April. However, many parts of the legislation are wholly unchanged. There is no change in the definition of a deposit, or the restriction on taking property as a deposit instead of money. So, court decisions which interpret these unchanged parts of the legislation are not affected.

There is no change in the requirement to protect the deposit within a set time after it has been received in connection with an AST. So money that the landlord or agent has obtained which is intended to be used in relation to an AST agreement falls within the legislation.

Therefore, the county court guidance that states that taking the last months rent in advance at the start of the tenancy is probably a deposit remains valid, as does the Court of Appeal decision which holds that a promise to pay money at some future date does not qualify as a deposit, as this requires money to be paid by the tenant with the intent that it will be returned. Likewise, the obligation to serve the prescribed information properly and in full also remains unchanged. It also remains the case that a lettings agent is liable for a failure to protect the deposit and can be sued in preference to the landlord. However, the advent of the new variable penalty would now allow a court to make an order against the agent with the penalty fixed at the lower end of the scale if they were not responsible for registering the deposit.

One component of the Hashemi decision also remains valid that is that any claim for an unprotected deposit must be taken by all the tenants together and not by one acting unilaterally without the consent of the others.

Section 21
Where the deposit has not been registered and the prescribed information not sent to the tenant within 30 days the landlord only really has one option if he seeks vacant possession. That is to hand the deposit back to the tenant and the serve the notice. Landlords will of course not be happy about this as many like the security of being able to call for that money when there are dilapidations, so this is all the more reason for getting it right.

What do you need to do now?
It is not clear whether the new provisions will apply to tenancies that began before the 6th April 2012 however we advise that agents and landlords should begin to check agreements now and register deposits and provide prescribed information if they discover they have not done so to avoid the new scale penalties.

34 Comments

  • Peter Smith 1st March 2012 at 6:38 pm

    Just one thing disturbs me here: ” the county court guidance that states that taking the last months rent in advance at the start of the tenancy is probably a deposit remains valid,”

    How could that be? The Act clearly defines anything a deposit if it may be returned, but a last month’s rent is by definition not due for return under any circumstances.

    Perhaps Painsmith’s could provide more information and guidance on this point?

    • PainSmith 5th March 2012 at 10:58 pm

      The Act in no way states that money is a deposit because it may be returned. The Act defines a deposit as money taken as security. The Court of Appeal decision in UK Housing Alliance v Francis suggests that money can only be a deposit if it is paid and intended to be repaid and so that would suggest that taking the last month’s rent at the start would probably not be a deposit but the position is by no means certain. Many county court judges will take the view that taking the last months rent in advance is a deposit and so the guidance remains to avoid doing this.

  • suekelly 27th March 2012 at 7:58 am

    If a tenant has been awarded the three times penalty under the existing legislation for the failure of the landlord to provide the Prescribed Information, does the deposit have to be returned to the tenant even though the tenancy is still running (and the landlord still refuses to provide the Prescribed Information)?

    • PainSmith 27th March 2012 at 10:29 am

      The court would have ruled that the deposit is either returned or put in a scheme.

  • Ying 16th April 2012 at 8:20 am

    My tenance starts after 6th April, but I paid my deposit on 15th March. My situation is a bit special. I am confused. Does my landlord/agent have 14 days or 30 days? If new law applies, is 30 days counted from my payment date, or from 6th April?

  • reevetard 24th April 2012 at 5:44 pm

    If a deposit was protected, but prescribed information not passed on to the tenant, how should this be treated by the court?

  • johnmitch 4th May 2012 at 8:31 pm

    As a landlord, all my current tenants’ deposits are protected correctly. However I have failed to protect a number of previous tenants deposit. 1) Would they have a valid claim against me now that the new legislation is in place or could I still rely on Hashemi/Tiensia. 2) Is it possible to protect a deposit from a tenancy that has already ended and if so should I do this.

    • PainSmith 8th May 2012 at 12:46 pm

      Hashemi and Tiensia no longer help landlords so the advise is protect the desposits where the tenancy continues. The schemes are no clear on whether they will take a deposit if the tenancy has ended you will need to talk to them. If they dont secure the deposit the tenants may have a claim but remember the courts can award up to 3 times the deposit so they could award nothing if the tenant has not been prejudiced.

  • DaveBarn 23rd May 2012 at 11:52 am

    I have a couple of questions please, one similar to “johnmitch” above:

    I have a new tenant from May 1st 2012 and everything is protected, prescribed information etc, no worries there.

    However, I did not protect a previous tenants deposit at the property. The tenancy ended in December 2011 and I have just received a formal letter from the tenant seeking £2250 (3 times the original deposit). I have looked at the new legislation in depth and even spoken to a paralegal friend of mine, but he couldn’t and I still can’t work out, if the tenant could actually gain a judgement in court or not!? Obviously, I didn’t protect the deposit, but the new legislation doesn’t seem to cater for any tenancy that ended before 6th April, so how should/could these cases be treated by the court? what is the likely outcome?

    I also have another tenancy, that ended on the 5th April 2012 (yes, really!!) and this seems to be in an absolute void. I’m concerned here, as I protected the deposit and provided prescribed info, but I don’t remember signing the deposit certificate that I gave to the tenant (genuine mistake), which i’m told is part of the prescribed information requirement, so could that tenant now take court action against me for not supplying the proper prescribed information, despite the fact I protected the deposit and supplied everything else properly?

    What is your opinion on these examples please?

    • PainSmith 24th May 2012 at 1:46 pm

      The new legislation makes provision for former tenants to claim (see new s1A of s214 Housing Act 2004). If you have not complied with s213(3) or (6) i.e. complied with the requirements of the authorised scheme and served prescribed information then you have not protected the deposit and the tenant is entitled to make the claim. Potentially this leaves landlords exposed where tenancies ended a while ago and the deposit was never protected. The legislation gives the court discretion with regards to the return of the deposit: a new s3A applies where the tenancy has ended and provides that : “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 applicant…”. However s214(4) still applies in an amended form: “the court must order the landlord to pay to the applicant a sum of money not less than the amount of the deposit and not more than three times the amount of the deposit….”.

      In short – if you didn’t protect the deposit you will face the penalty. The hard part of your question to answer is how these cases will be treated by the courts. Without the need for a crystal ball we can see that there is potentially room for some onerous decisions – after all there is now nothing you can do about it if you did not protect the deposit and returned it in full, yet the court is required to make an order that you pay at least the amount equal to the deposit back as a penalty.

      This legislation was amended following the “coach and horses” driven through the last incarnation of the deposit requirements. No doubt there is a new set of cases waiting to happen. Watch this space.

  • Maria 14th June 2012 at 6:14 pm

    We would like to ask if we can start the claim even when the tenancy has not finished yet – finishes September 2012 and we want to leave also because of disrepair – our landlord does not protect deposit (we sent him letter asking which protection scheme he uses and to provide us this information) he simply ignored it and thinks nothing goings to happen, we also checked with all 3 deposit schemes. If he protects it before it goes to court, court still have to order to pay him the fine and return us the court fees? Because obviously he is wrong and we do not want to lose court fees and also we want him to pay the fine, but we are wondering if there is any way he can slip from this now after change of legislation – as we read about the legal loophole and the older cases but do not really know how it is now? Tenancy started in September 2010 and than the estate agent got rid of us and said we deal with our landlord directly so the new tenancy agreement started September 2011.

    • PainSmith 28th June 2012 at 10:23 am

      The legislation regarding the registration of deposits was amended under the Localism Act and the changes came into force on 6 April this year. Under the new rules the landlord cannot save himself from a claim by late protection of the deposit. All he can do is attempt to minimise the penalty awarded against him. The sanction for failure to protect the deposit within 30 days of receiving it is that the court will order repayment of the deposit to the tenant or for it to be put into a scheme, and must order the landlord to pay a sum not less than the amount of the deposit and not more than three times the amount.
      There is no case law yet so we cannot predict how the courts will apply their discretion but it would be reasonable to assume that a landlord who deliberately defies the rules will be penalised more than one who inadvertently failed to protect the deposit through for example an oversight. Any tenant or former tenant ( the new rules allow claims from former tenants) who believes their deposit has not been protected is advised to seek legal advice as to whether they might have a claim.

  • wang 25th June 2012 at 5:04 pm

    Hi there:
    My tenancy starts on 04/2011 and finish on 06/2012. The landlord has not protect my deposits into the three schemes. Will this changes effective if I take him to court?
    I did not pay the last month rent because I am afraid he will not return my deposit.
    At the beginning when we moved in, there is no inventory list. At the end of the tenancy, he showed me a well-prepared invenotry list with no signature and want to charge all my deposits. This landlord has not fulfil his responsibility from the beginning. He promised to replace the broken chairs and took the extra bed we don’t need, he also promised to fix the range hood which were still broken on the day we move out. He was suppose to give me the car park permit but he also failed to do so and caused me car park fines. After the tenancy ends, I ask him to give my deposit back and he threatened me by saying he will put my deposit into the scheme and he will be no longer liable for the 3 X deposits charge because it is before the change of the law. He also said he will charge me more than the deposit I have paid because I take him to court. (Although I don’t have any written evidence of him saying this)

  • Reevetard 6th July 2012 at 3:02 pm

    Hi there, wonder if you could answer two questions for me please:

    I am a landlord and have commenced an accelerated possession procedure against my tenant, as they have not vacated the property (section 21 notice served properly, deposit protected on time). However, I spoke to my agent (who fully manages the property) yesterday and they are now saying that they think they might not have served the prescribed information fully to the tenant!!! From what I have read online, it now seems inevitable that the tenant will make a counterclaim against me. However, the tenant has also stopped paying rent…….my questions are:

    1) If the tenant does make a counterclaim and is awarded a penalty amount because the agent didn’t serve the information properly, can I make a counterclaim to that, in order to offset the rent arrears? (I ask this, as I have read that rent arrears claims can not be made when using the accelerated possession procedure, but I do not know if this applies to counterclaims also).
    2) How do I recover the penalty award if granted to the tenant? Do I need to sue the agent for not serving the information correctly?

    Many thanks for your help.

    • PainSmith 10th July 2012 at 9:23 am

      1) In principal yes, if the tenant made an application for a penalty amount, but you could show that she owed x rent arrears you could ask the court to off-set the one against the other. ( With regards to accelerated possession procedure there should be no money claim or counterlcaim as the procedure is for possession only). You should note that your section 21 may be invalid if the prescribed information has not been served

      2) You would need to look at your terms of business with your agent.

      Given the issues you raise and the risks it would be sensible to take some specialist advice before starting any proceedings

  • Lloyd 3rd August 2012 at 5:49 pm

    We are 3 students whose former landlord, in spite of having agreed in writing that there would be no deductions upon vacation as property was spotless, has simply not returned our 3 x £250 deposits.

    In your introduction above, you state:
    “One component of the Hashemi decision also remains valid that is that any claim for an unprotected deposit must be taken by all the tenants together and not by one acting unilaterally without the consent of the others.”

    The fourth tenant in our student house was the landlord’s daughter; annoyingly, the landlord nominated his daughter as lead tenant, so DPS have their hands tied. My question is, must we have all 4 household members on board for an action under the Localism Act, or would a quorum of 3 suffice under the circumstances?

    All other conditions appear to be met: deposit paid to Landlord in August 2011 was lodged with DPS on 6th June 2012. One potential further complication is that, although I have referred to our landlord as “he”, I see from our rental agreements that the actual landlord was a trust which I gather was set up by him with, we suspect, his daughter as beneficiary.

  • Stuart 4th September 2012 at 10:29 am

    I started a tenancy in Sept ’07, the landlord did not protect my deposit and did not return any of the deposit when I moved out in April ’09. The reason the landlord did not return any of the deposit was: final paid bills for all the utilities were not presented within one month of moving out.

    I am in the process now of taking the landlord to small claims court to get the original deposit returned. Do you think I have a case to fine the landlord for not putting the deposit in a deposit protection scheme?

    • PainSmith 22nd October 2012 at 7:45 pm

      Since the Localism Act came into force former tenants can apply for the penalty if their landlord failed to protect the deposit. So you may well have a claim.

  • Vicky Dix 6th December 2012 at 12:49 pm

    Hi, our tenant moved in with boyfriend in March 09, deposit of £500 paid to us, they then split up but the original deposit was kept ( half had been paid by each tenant)and a new agreement made for the lady on her own. We didnt put original deposit into a deposit scheme, We gave her 2 months notice to leave which she did in November 12, but the house was in quite a mess ie:not cleaned, carpet filthy(dog wee etc), we found out she had had dogs living there and a rabbit in a bedroom without permission! Also in several rooms wallpaper had been partly stripped from walls (we think dogs did that also) stickers were applied to wardrobes which had to be painstakingly removed and doors then sanded and re-painted. we took photos. We thought we were being kind by offering to give her £400 back, the £100 to cover the carpet deep clean and some wallpaper, but she says she is seeking legal advice and hasnt given us the keys back!! She changed her phone and did not give us number or her forwarding address, we found out her new number from her ex boyfriend, and phoned her but she says we will hear from her when she has sought this ‘legal advice’. We didnt really think about putting deposit into a scheme, we didnt really know about it, we never had before and she never asked etc. I realise we should have now with reflection. We are not unscrupulous and feel we are being overly fair with her. Any advice or comments welcome, dont know what to do really. The most recent rental agreement was dated 16th march 2011 for one year, although she stayed until November. Can she get 3X deposit by a court??

    • PainSmith 12th December 2012 at 1:42 pm

      We suggest you take some professional advice. It appears on the face of what you sya that your tenant may have a claim.

  • Donna Leon 25th February 2013 at 6:47 pm

    My tenancy agreement started 01/08/2010 & ended 31/01/2013. My landlord is only giving me £175 out of my £700 deposit of which I dispute. There was no damage to the property & she has made up problems & put the blame towards us. We left due to the external mould problem & it effecting my 21 month old daughter’s health. I have checked & confirmed that my landlord did not hold our deposit in the tenancy deposit scheme. Can we take her to court & can she still put our deposit in this scheme now to get herself out of trouble?

    • PainSmith 27th February 2013 at 10:23 am

      All deposits must be protected in an authorised scheme and if this has not been done you can claim for the return of the deposit and also for the court to award a penalty of 3x the deposit. A former tenant can claim even where the tenancy has ended. The landlord cannot protect the deposit late to save herself from the penalty. You should go to CAB/solicitor to get specific advice about your situation.

  • L Baxter 27th February 2013 at 10:03 pm

    Our landlady failed to protect our deposit in a tenancy deposit scheme. We were advised that because of this she would forfeit her right to serve us with a section 21 notice. We requested that she protect our deposit but she refused and instead she posted the deposit in cash through our door along with a section 21 notice and said she had the police present to witness that she had done this. Does the fact that she has now apparently returned our deposit mean that we can no longer claim for the penalty for x3 our deposit?

  • stacey 7th March 2013 at 12:50 pm

    Hi. I have recently left my tenancy which we started renting in june 2011. My landlady did not protect our bond, and has been ignoring our calls and texts, until i mentioned legal action. She has now made excuses as to why we wont get our bond back, even though we know we left the house perfectly clean and tidy. Do we have the right to claim?

    • PainSmith 7th March 2013 at 1:26 pm

      All landlords must protect the deposit. Check with all the deposit schemes and if you are sure it was not protected then you would have a right to claim.

  • J.Clay 7th March 2013 at 11:14 pm

    Hello I moved into a rented flat on 01 Nov 2011 and the LL secured my deposit with my deposits within 2 days. I then had a new contract with higher rent from 01 Nov 2012 to 31 Oct 2013. I gave a months notice as required meaning I moved out on Feb 28. A week before I moved I had another Certificate from my deposits sent to me by the landlord showing that the deposit was not re-secured for this term until 14 Feb 2013. I get the feeling they are going to try and hold some deposit back as well, even though I left the flat in what I would say is a better condition. Have I a right to claim?

  • Sophie 21st March 2013 at 9:49 am

    Am I right in saying that there is a new amendment to an Act that in in order to release the tenants
    deposit the tenant must provide a forwarding address?

    • PainSmith 22nd March 2013 at 8:03 pm

      This is not in the Localism Act. In our view there is no such rule but you should check with the deposit schemes as to their rules.

  • Steven 25th April 2013 at 7:51 am

    Hello,

    Our tenancy started in February 2013. The landlord has protected our deposit, but failed to do so within 30 days. We have not received any prescribed information.

    What are we entitled to claim?

    On the day our tenancy started, the landlords agent incorrectly protected our deposit with the TDS. This was pointed out to us within a couple of hours. Behind the scenes, the agent has sent the deposit on to the landlord for him to protect (as the property was to be manged by the landlord, not the agent – a mix up between landlords and agent). Does this affect our ability to claim for a penalty? In my opinion, any mix up between landlord and agent does not concern me. Ultimately, the information we received in regards to our protected deposit by the landlord, was not received within 30 days of us paying the deposit to his agent.

    We are still living in the property – tenancy finishes in August.

  • Keith Fd 3rd May 2013 at 8:12 am

    It is is a shame that you see this as an avenue to make money off your landlord as oppose to protect you as the law intended.
    This is just sheer greed and If I were the judge I would throw it out of court.

  • Jo 12th May 2013 at 8:27 pm

    I completely agree. Work and earn money rather than get rich suing people for these stupid breaches.

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