Tenancy Deposits – Yet Another Fine Mess

From 6th April 2007, deposits for residential tenancies have had to be protected in a tenancy deposit scheme and the tenant has to be given certain information about the scheme. As the court acknowledged in its decision the legislation about tenancy deposits has brought about all sorts of consequences that no one anticipated when it was introduced. This is yet another one.

In short, the decision dealt with whether Superstrike Ltd were entitled to serve a s. 21 notice on a tenant who had entered into a tenancy before the need to protect tenant’s deposits came into effect and stayed in the property on a statutory periodic tenancy which began after the tenancy deposit schemes were introduced.
The argument for the tenant was that the statutory periodic tenancy was a new tenancy and that the continued holding of a deposit on the commencement of that tenancy amounted in law to “receipt” of those monies. The deposit therefore should have been put into a scheme within 14 days of the original tenancy coming to an end.

The Court of Appeal agreed with those arguments. The landlord was therefore not entitled to serve a s. 21 notice. The notice was therefore invalid and the possession claim had to fail.

Taking the court’s decisions to their logical conclusions, this means that any time a fixed term tenancy expires, the landlord potentially has to re-protect any deposit and provide the required information again.

Opinions are divided as to whether that is necessary but it certainly has to be considered the safe step.

Going forward that is probably not too much of a concern. The difficulty is that not only can a landlord not serve a s.21 notice if the deposit is not protected in time or the information served, the tenant can also claim up to 3 times the deposit as a penalty.

Landlords therefore potentially face having possession claims going back up to 6 years being overturned (possibly as wrongful evictions!) as well being hit with penalties of up to 3 times the deposit; again potentially going back up to 6 years.

The “failure” to provide the required information can be cured by giving the information even if late. The “failure” to protect the deposit can’t. The only way to get the right to serve a s. 21 notice back is to return the deposit. The landlord will still potentially in line to have to pay up to 3 times the amount of the deposit to the tenant on top.

What can a landlord do to avoid the problem?
Firstly, think about whether you really need a deposit. Consider whether insurance, coupled with a guarantee from someone with sufficient assets might not be simpler and just as effective.

Secondly, if you feel you have to have a deposit, you obviously need to make sure that all deposits are properly protected. On renewal, I would suggest you write to the tenant informing them that the deposit is available, that you will require a deposit for the new tenancy and suggest that they simply agree to leave it where it is and provide fresh sets of the required information.

Thirdly, you could try to ensure that you don’t have a new tenancy. Instead you could agree with the tenant to extend the term of the current tenancy. There is therefore no new tenancy and no issue about the deposit needing to be protected or the required information provided again.

Finally (and apologies to those readers who are letting agents), if you use a letting agent, make sure that your contract with them requires the agent to properly take of these details. That way if things go wrong, you may at least have someone else to shoulder the cost.

Landlords should also check their insurance policies to see if they provide cover for claims of this sort by tenants.

And as always, if in doubt about what to do, consult a solicitor with knowledge of landlord and tenant law and disputes such as Ian Pinder at Gardner Croft Solicitors.