Landlords, are you sure you know what you’re doing?
The concept of compulsory tenancy deposit protection was introduced in April 2007, writes Ed Cracknell, Associate at Russell-Cooke LLP. There had been a perception that unscrupulous landlords could withhold tenants’ deposits for spurious reasons, and that there was a lack of recourse for tenants. Three deposit protection scheme providers were set up who will hold (or insure) deposits and seek to resolve disputes at the end of the tenancy.
Compliance with the deposit protection rules is important because an infringement allows the tenant to apply to court for an order that the landlord must return the deposit and pay a substantial penalty sum. It also prevents the landlord from serving a standard two month “section 21” possession notice until the infringement is resolved.
The rules have developed over time and the following aims to summarise the current position.
What is the landlord’s obligation?
Landlords who take a deposit sum in relation to an AST (i.e. broadly speaking a letting of residential property where the rent is no more than £100,000 per year) must protect that deposit in an authorised scheme within 30 days of taking the deposit.
Within the same time period, landlords must give various items of written information to the tenant, known as the Prescribed Information.
Broadly speaking, these steps must be taken at the following times:
1. at the start of all tenancies entered into since April 2007,
2. at the end of a fixed term tenancy which started before April 2007, where the tenant remains in occupation after April 2007,
3. arguably, whenever a tenancy is renewed
How is the deposit to be protected?
Landlords should contact one of the three scheme providers (in no particular order):
1. The Dispute Service (www.tds.gb.com),
2. The Deposit Protection Service (www.depositprotection.com)
3. My Deposits (www.mydeposits.co.uk).
Information on their websites will explain what to do. A fourth scheme, Capita, briefly existed but at the time of writing was not accepting new deposits.
The landlord should also take care to give the tenant all of the Prescribed Information, inviting him or her to sign to confirm the information is correct.
What is the Prescribed Information?
There are several categories of information that must be provided. Although it is the landlord’s responsibility to serve the correct information, the scheme providers help by providing a suggested template comprising a form to complete and a leaflet or a set of terms and conditions.
If there is a dispute about whether the Prescribed Information has been given, it will be important for landlords to have evidence that it was. Landlords should deliver the Prescribed Information by hand, ideally accompanied by an independent witness. Landlords should invite the tenant to sign the documents to acknowledge receipt.
What can landlords do if they miss the 30-day deadline?
They could comply with the obligations as soon as possible. If the tenant applies to court for a penalty payment, the court might be persuaded to award a penalty at the lower end of the scale (the court has a discretion to award a penalty of between one and three times the amount of the deposit).
At or near the end of the tenancy, in order validly to serve a section 21 notice seeking possession, the landlord should probably return the deposit in full. The landlord should ensure he can prove safe receipt of the deposit money by the tenant, getting a written acknowledgement if possible. There may be other options, but these should be discussed with a solicitor.
Where can landlords go for further advice?
The deposit scheme providers will guide landlords through the process of protecting the deposit but it is not their job to provide legal advice. Being a member of organisations like the National Landlords Association (www.landlords.org.uk) and the Residential Landlords Association (www.rla.org.uk) may help.
If a landlord needs to seek possession, or is faced with a penalty claim, he or she should seek advice from a solicitor.
This is a guest post by Ed Cracknell, Associate at Russell-Cooke LLPTagged in: deposit protection, landlords, renting
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