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Changes regarding protection of tenants’ deposits following the Localism Act 2011

21 June 2012

Landlords and their agents should be aware that when provisions of the Localism Act 2011 were brought into force that on the 6th April 2012 certain changes were made to the Housing Act 2004 in relation to the protection of tenants’ deposits.

Before the changes came in to force there was much case law where tenants were suing landlords under section 214 of the Housing Act 2004.  Some tenants were successful and exploited the required order the Court had to make for the return of the deposit plus an amount equal to three times the amount of the deposit by way of penalty.  However more recent decisions allowed landlords to escape the provisions if they protected the deposit prior to the Court hearing taking place or if the tenancy had ended.

The provisions of s184 of the Localism Act make fairly radical changes to the provisions of sections 213, 214 and 215 of the Housing Act 2004. In brief the changes block the recent loopholes, alter the time frame in which a landlord must protect a deposit, and vary the penalties a Court can order against a defaulting landlord or agent.

A landlord taking a deposit from a tenant must now:

  • (a) protect the deposit within one of the Schemes within 30 days (increased from 14 days) of receipt and
  • (b) provide the prescribed information to the tenant within 30 days of receipt.  BOTH requirements must now be met for the landlord to avoid being in breach and subject to the penalties. 

Failure to do so now means that on day 31 if the tenant has not received all the requisite information he can immediately make an application to the Court. 

If on the tenant’s application to the Court, the Court is satisfied that the above requirements have not been met, it will order the deposit to be repaid to the tenant.  The Court can also now order the landlord to pay to the tenant a sum of not less than the amount of the deposit but not more than three times the amount of the deposit by way of a penalty.  There is now a discretion for the Court to order the sum it sees fit rather than the definitive three times.

Another major change that has come in is that even where a tenancy has ended, if the deposit was not protected in line with the new provisions a former tenant may bring a claim through the Courts for the return of the deposit plus the discretionary amount by way of penalty.

In relation to service of a Section 21 Notice, previously a landlord could not serve a Section 21 Notice until they had complied with the Act and protected the deposit.  This meant they could take steps to protect the deposit and then serve the Notice. 

Now a landlord is stopped from serving a Section 21 Notice until:

  • either (a) the deposit has been returned to the tenant in full or with such deductions as are agreed between the parties
  • or (b) an application to the Court has been made and has been determined by the Court, withdrawn or settled by agreement between the parties. 

This means therefore that a landlord cannot now rectify matters in order to allow him to bring the tenancy to an end by the Section 21 procedure. 

To me, it is this provision, that imposes the biggest threat to landlords.  Whereas before a landlord could remedy matters at any stage up to the hearing by protecting the deposit, now he cannot.  It is protect and inform the tenant accordingly within 30 days or else.  Regardless of whether or not the tenant has issued a Court claim, in order for the landlord to serve the Section 21 Notice, they will have to return the deposit to the tenant first.

In a heavily rented market, landlords should be aware of the new provisions and ignore them at their peril.  It is always advisable for a landlord to take a deposit from a tenant.  It is protection for the landlord for repairs, unpaid bills and unpaid rent at the end of the tenancy.  The legislation when the Housing Act 2004 came into force discouraged many landlords from taking a deposit due to the perceived 'hassle' of having to comply with the legislation.  In my view this is misconceived from the landlord’s perspective.   A deposit should be a necessity and protecting it is simple and can be done quickly online with the minimum of fuss. 

All the documentation that needs to be provided to the tenant in order to comply with the obligations regarding prescribed information referred to above, can be found on each of the Scheme’s websites and is easily downloadable and printable immediately following protection.    With the 30 day period in which to do this, it gives the landlord enough time to comply and is therefore the protection they need for the end of the tenancy.  Having the deposit protected is also protection for the tenant as this means at the end of the tenancy matters will be dealt with according to the Scheme’s rules.

What should a landlord who has not complied do? 

This depends on whether the landlord is sure his tenant will vacate at the end of the fixed term without the need to serve a Section 21 Notice.  My advice can only be that if a landlord has not protected the deposit nor provided the paperwork to the tenant then they must take steps to repay the deposit before they serve a Section 21 Notice. 

A possible way round the issue where a landlord has complied with part (a) by protecting the deposit but not complied fully with part (b) by providing all necessary information regarding the protected deposit, would be for the landlord to get together the documentation as quickly as possible and serve this on the tenant now.  There is always the risk that this will trigger Court proceedings from the tenant if they realise a claim can be made under the changes since 6th April 2012.  It would be a risk worth taking if the landlord had no other means of terminating the tenancy and wished to regain possession of his property.

Looking to the future, landlords must ensure that they act quickly when taking a deposit from a tenant and protect it straight away and deal with the issuing of the documentation to the tenant within the 30 day period. 

To discuss the issues raised here further or to seek advice related to a specific tenancy please do not hesitate to contact Sarah Woolnough on 01227 763939.


 

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