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I Haven’t Protected the Deposit? What can I do?

As regular readers of this blog will be aware the 6th April 2012 saw the amendments made to the Housing Act 2004 by the Localism Act 2011 come into force.

Prior to these changes various court decisions (in particular Tiensa v. Vision Enterprises Ltd [2010] EWCA Civ 1224 and Gladehurst Properties Ltd v. Hashemi [2011] EWCA Civ 604) rendered the provisions on enforcement of the deposit protection scheme, in the words of Lord Justice Sedley, “a dead letter”. These decisions meant that where a deposit had not been protected it was relatively easy for landlords and agents to avoid any of the penalties as included in section 214 of the Housing Act 2004. The changes were meant to correct the errors in the original drafting and give the Housing Act 2004 real teeth.

The changes mean that if a deposit is now not protected (and more below as to what this means) properly then the landlord and/or agent will be subject to a penalty amount if the tenant makes an application to the Court. The other serious consequence is that a landlord will not be able to serve a valid Notice under section 21 of the Housing Act 1988 (Section 215 Housing Act 2004). This Notice allows a tenancy to be ended without the landlord having to prove any fault on the part of the tenant and is a sure way for a landlord of obtaining possession.

To properly protect a deposit there must be strict compliance with the rules of one of the authorised schemes (section 213 Housing Act 2004). This now means that the deposit must be protected within 30 days of receipt (not necessarily the same as the start date of the tenancy), together with the giving of any and all prescribed information and any other requirements of the particular scheme (some require an advice leaflet to be given). If the deposit has not been fully registered within this scheme the general view currently is whilst you can register the deposit out of time this will not afford you protection.

So if the deposit is not properly registered what can happen? Firstly you will not be able to use a section 21 Notice to seek possession. The court forms for accelerated possession have been changed to ensure that details of the deposit and its registration are included. In our experience Courts are looking at this information and considering if deposits have been properly registered. The tenant may also make an application under section 214 of the Housing Act 2004 to seek a return of the deposit and also a penalty amount.

The Court has the power to order the return of the deposit in full to the tenant or that it is paid into an authorised scheme. Whilst prior to the changes the Court had to award a penalty amount of three times the deposit this has been amended so the Court can award an amount between one and three times the deposit amount. It is here that the Court retains some discretion as to the amount. It will be for the landlord or the agent to adduce evidence to try and mitigate this amount perhaps by showing that there was a technical breach, financial hardship etc. Clearly an award requiring the return of a deposit and also a penalty of three times the deposit (which of itself could be more than 4 months rent) will be crippling to many landlords and if such a claim is made as a counterclaim in rent arrears proceedings may wipe out any and all arrears meaning that possession is not granted.

With regards to section 21 notices if the authorised scheme has not been strictly complied with the landlord cannot serve a valid Notice. At this stage there are no particular cases relating to the changes and how in practice the Court will look at this situation. It is however believed that simply complying with the requirements out of time will not of itself allow you to then serve a valid section 21 Notice. Section 215 does provide that you can return the deposit in full to the tenant. It is believed that tenants will be advised not to accept the return of the deposit so in this way preventing a landlord from being able to serve a section 21 Notice. If the tenant brings a claim under section 214 Housing Act 2004 and this has been determined, withdrawn or settled this will allow the landlord to then be able to serve a section 21 Notice. If a section 21 Notice cannot be served this would then mean that a landlord could not rely upon this mandatory no fault ground to bring possession proceedings. A tenant would then find themselves in the position of almost being akin to an assured tenant only able to be made the subject of a possession order if one of the grounds to Schedule 2 of the Housing Act 1988 had been made out.

We are yet to see how the Courts interpret the amended Act and whether they give landlords “get outs” as they did previously. Most people will not want to be the no doubt expensive guinea pig to test this situation. The will of Parliament was to give the legislation teeth as part of the regulation of the private rented sector. It is vital that you do comply and if you become aware of a deposit which has slipped through the net take advice.

6 thoughts on “I Haven’t Protected the Deposit? What can I do?”

  1. An interesting situation. Our landlords have issued us a S21, for the end of our 12 month AST. Having had previous difficulties with them, we anticipate that they will be obstructive over return of the deposit.

    Having checked the records, I note that they (a) only registered our deposit 3 months after receipt, and (b) incorrectly registered it as relating to a 6 month (not 12 month) tenancy.

    Should we experience difficulties over the return of the deposit, we are considering utilising the option of applying to the court to order the return of the deposit, and application of the penalty as specified under the Localism Act 2011 amendments.

    What are the likely costs of taking such a case to the court, and who will have to bear them? Can the court order costs to be met by the landlord, if it finds against them? Is this likely?

  2. I would like to first thanks PainSmith for their insightful blog articles on this matter. A friend (my former landlord) is in a predicament – he has been a long term landlord of several properties and has never experienced any problems through the use of DPS (and holding it privately prior to 2007).

    In this instance, he agreed to let his flat to a friend’s friend at a reduced cost a few years back, and for various reasons ended up not paying the deposit into a scheme.

    The tenant never really raised any issue with this although they did question at one point, I believe, about the details of the scheme. Time then lapsed.

    The tenants have now moved out (no S21 involved). Normally there is some reasonable discussion of nominal repairs/damages before the return of the deposit via the DPS (never any arbitration required), but in this case my friend has now found that that more-than-wear-and-tear damage has been done to the property, unintentionally, that requires at least a third of the deposit to repair.

    The tenant was initially agreeable to discussions about covering the costs of repairs but has now sent a letter of intent (citing the deposit scheme) as reason to return the full deposit.

    Given the recent developments, it seems my friend is stuck likely to have to return the full deposit and somehow appeal to the better nature of the tenant to cover some of the costs incurred for damage. If not, I thought that he could perhaps consider court proceedings… but would he really stand a chance in this day and age?

    It would be good to have some thoughts on this from others. I still rent and can appreciate its difficult for landlords now with interest rates and mortgages going up and rents not increasing.

  3. I would like to ask about the deposit. I have a tenant who has been in my house for 3 years 9 months. He didn’t give me a deposit until about 18 months into the tenancy. As I originally only gave him a 6 month contract and then didn’t sign a further contract, he has been in my house for 3 years 3 months without any signed documentation. Do I still fall under the DPS, and if so, can I put the money in now, even though I am taking him to court on the 19th July under a Section 8 Eviction Notice. He hasn’t paid rent for about 3 months as the Benefits Agency suspended his payments because he moved someone in without declaring it. This is my first tenant so I am unsure as what happens. Thanks

    1. A deposit received in relation to an AST must be protected in a scheme within 30 days of receipt and it looks as though you didn’t do that. The tenant may have a counterclaim against you which could be set off by the court against whatever rental arrears he owes. You should seek legal advice.

  4. I am in a similar position. First time landlord, and I have clearly made a very silly mistake. I also did not secure the deposit within the 30 days limit. I did it 2 months later.
    Now the tenants are not paying their rent, and I assume will try anything not to. If I cannot serve section 21, how do i get my flat back? If I cant pay my mortgage, I will loose the flat, and the the tenants will loose their home anyway, so how can this be resolved. I am aware that I will need to bear the cost of my mistake in not paying the deposit into an account, but why can the tenants simply not pay rent, and live for free in a property that I have worked hard for?
    Please help with any advice possible?

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