Background

For most tenancies, a tenant pays a tenancy deposit to their landlord before they move into a rented property. The sum of the deposit is capped at five weeks’ rent where the annual rent is less than £50,000 and six weeks’ rent where the annual rent is £50,000 or more. The deposit is usually paid to the landlord with the first month’s rent, after the tenant signs their tenancy agreement.

Landlords can choose whether to protect a tenant’s deposit in an insurance-based or custodial scheme.

Under an insurance-based scheme, a landlord holds on to the deposit during the tenancy. They cannot use this money to cover their own expenses, as the funds legally belong to the tenant.

Tenancy deposit custodial schemes became operational from 6 April 2007 in respect of assured shorthold tenancies (AST) created in England and Wales after that date. .

In England and Wales tenancy deposits can be registered with three protection providers:-

• Tenancy Deposit Scheme (https://www.tenancydepositscheme.com/)
• Deposit Protection Service (https://www.depositprotection.com/)
• MyDeposits (https://www.mydeposits.co.uk/)

These providers are independent, regulated third parties who ensure the deposit is protected and that tenants have the full amount returned to them at the end of their tenancy if they comply with the terms of their tenancy agreement and maintain the property as agreed.

A landlord’s obligations

A landlord has 30 days from receipt of the deposit to place it in a scheme and provide a tenant, and anyone who paid the deposit on behalf of the tenant – classed as “relevant persons” with confirmation the following “prescribed” information:-

• the rented property address
• how much deposit they have paid
• how the deposit is protected
• the tenancy deposit protection scheme, its contact details and its dispute resolution service
• their (or the letting agency’s) name and contact details
• the name and contact details of any third party that has paid the deposit
• why they would keep some or all of the deposit
• how to apply to get the deposit back
• what to do if they cannot get hold of the landlord at the end of the tenancy
• what to do if there’s a dispute over the deposit

At the end of the tenancy, the landlord must return the deposit within 10 days of both the landlord and tenant agreeing how much will be returned.

A tenant can contact a deposit scheme administrator to check if their deposit is protected.

For a landlord, protecting a tenant’s deposit and providing the required information is a legal requirement. There are serious implications for not doing so.

Consequences of not complying with the tenancy deposit obligations

If a tenant’s deposit has not been protected by a landlord the tenant can apply to the Court. The Court must order the landlord to pay a penalty award to the tenant or pay the deposit into a protection scheme. The amount of the award is at the Court’s discretion, between the amount of the deposit figure to three times the deposit figure. A landlord may also be subject to pay the legal costs of the tenant’s application.

A landlord cannot validly serve a section 21 notice for possession of their property where the deposit was not protected within the 30 days, where deposit is not currently protected with an authorised scheme or where a deposit was protected but a tenant has not been given all the prescribed information listed above.

• Deposit not protected within 30 days

If the deposit hasn’t been protected or wasn’t protected within 30 days, then no section 21 notice may be served until:

(a) the landlord has returned the deposit to the tenant in full or with such deductions as are agreed, or

(b) the landlord has applied to the Court and the matter has been determined by the Court, withdrawn or settled by agreement between the parties.

• Deposit Protected but no (or incorrect) Prescribed Information provided

The landlord can provide the prescribed information at any time, even after the 30 days, and the section 21 notice may be served after.

If a tenant makes a claim, the Court must order the landlord to pay the penalty award if 30 days have been missed, there is no defence to this.

Circumstances when tenancy deposit deductions are permitted

A landlord should stipulate in the tenancy agreement reasons for potential deductions from the tenant’s deposit. Transparent terms explaining the possible instances should be detailed to ensure the conditions are clearly communicated.

A landlord can keep, or deduct from a tenant’s deposit to cover any missed rent payments, any damage caused to the property or items from an inventory have been lost or broken.

A landlord cannot deduct or keep a tenant’s deposit for reasonable wear and tear of the property.

If a dispute arises at the end of the tenancy, the landlord should hand over the disputed amount to the protection scheme if an insurance-based scheme is being used.

If there are any disagreements about deductions, the tenancy deposit schemes’ dispute resolution services can consider the circumstances and decide on the amount to be returned to the tenant. If both the landlord and tenant do not agree to use this service, they can proceed through the Courts.

If you are a landlord and would like to discuss and/or receive any advice in respect of protecting tenancy deposits, possession of your property or recovery of rent arrears, please call us on 0333 200 5200 or email info@greenhalghkerr.com. Our friendly and experienced team are happy to assist you.

Ruth Nevitt