Landlords: What you need to know about tenancy deposits
There have been a series of amendments to the rules governing tenancy deposits held by landlords, and recent further changes have finally clarified the position.
A landlord who grants an Assured Shorthold Tenancy ("AST") on or after 6 April 2007, and takes a deposit must:
- Protect any deposit received by registering it with an Authorised Tenancy Deposit Protection Scheme within 30 days of receiving it
- Give the tenant the “Prescribed Information” in relation to the deposit, within 30 days of receiving the deposit.
The Prescribed Information includes generic information about the Authorised Tenancy Deposit Protection Scheme, as well as specific information about the deposit and the AST under which it is paid.
What is an Authorised Tenancy Deposit Protection Scheme?
An authorised scheme is essentially a government - backed third party which protects a tenant’s cash deposit. Authorised schemes were introduced to ensure that tenants are treated fairly at the end of their tenancy and to resolve disputes between landlords and tenants.
There are two types of authorised scheme: custodial schemes and insured schemes. With a custodial scheme, a landlord registers the deposit and pays it into the scheme. The administrator then holds the deposit in a separate designated account throughout the tenancy. With an insured scheme, the landlord registers the deposit with the scheme, but retains the cash sum. The landlord secures the deposit by paying a fee and premium to the scheme administrator. The administrator will use the premium to pay the tenant, should the landlord misappropriate the deposit.
Do I need to re-protect the deposit if I renew a tenant’s AST?
If a deposit is held over following the contractual expiry of an AST, and used in relation to a renewal AST, the statutory requirements will be complied with, so long as the original deposit was protected with an authorised scheme, and the tenant was given the Prescribed Information within 30 days of receiving the original deposit.
However, where an AST commenced as a contractual fixed term tenancy before 6 April 2007, and the tenant remained in occupation after 6 April 2007, the deposit originally taken will now need to be registered with an authorised scheme upon entering into a renewal AST, and the tenant will need to be given the Prescribed Information.
What if I fail to comply with these requirements?
If you do not comply with these requirements, then you may be liable for a fine of between one and three times the amount of the deposit - this applies even if you return the deposit to the tenant with no deductions. Further, you may be unable to evict the tenant at the end of the AST.
What should I do if I have protected the deposit, but haven’t given the tenant the Prescribed Information in relation to the deposit, and I want to evict the tenant?
Failure to give the tenant the Prescribed Information will not stop you evicting them, but it will delay the process, and you may still be liable for a fine for providing the Prescribed Information late.
You need to obtain a court possession order before a tenant can be evicted. You can only apply for this order once you have given the tenant two months’ notice that you want them to leave the property, pursuant to s21 of the Housing Act 1988 ("a s21 Notice"). Legislation provides that you cannot serve upon the tenant a s21 Notice, unless you have given them the Prescribed Information. You should therefore give the tenant the Prescribed Information immediately.
Provided that you do this, and then serve on the tenant a s21 Notice, you will be able to take court action to evict the tenant, and potentially make deductions from the deposit*.
What should I do if I have not protected my tenant’s deposit and I want to get evict the tenant?
If you have taken a deposit from a tenant, but have not protected it within an authorised scheme, you will not be able to serve a s21 Notice, and will not be able to obtain a court possession order until you have first returned the full deposit to the tenant.
This means that if the tenant has caused any damage to the property, you will not have a deposit from which you can deduct the costs of the damage; you will need to bring a claim against the tenant through the courts for such costs.
How do I make deductions from the deposit if I have complied with all the requirements?
If the tenant has breached the terms of the tenancy agreement, then at the end of the tenancy the landlord and tenant should agree on any deductions. If the tenant disputes the amount that a landlord wishes to deduct from the deposit, the tenant is entitled to raise their dispute with the authorised tenancy deposit protection scheme. The dispute will then be resolved by way of alternative dispute resolution, with the process differing depending on the particular authorised scheme. As the deposit is money that belongs to the tenant, a landlord must prove that, on the balance of probabilities, it has a legitimate claim to all or part of the deposit. If this cannot be proved, the deposit must be returned to the tenant.
The decision of the adjudicator of the authorised scheme is binding, and if you disagree with the decision, you can only challenge it by bringing a claim in court.
To prevent future problems, we would always recommend that a landlord protects a deposit with an authorised scheme, and gives the tenant the Prescribed Information relating to the deposit, within 30 days of receiving the deposit.
*If you entered into an AST with a tenant after 1 October 2015, you will also have to give the tenant further information regarding the "Prescribed Requirements" in accordance with s38 of the Deregulation Act 2015, and s21A of the Housing Act 1988, before you are able to give the tenant a s21 Notice to leave the property.
If you would like further information, please contact Mary Cheng.
You can download a PDF version of this guide below.