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.
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.