The Life and Times of the Tenancy Deposit Scheme

Protection for tenancy deposits came into force on 6 April 2007, arising from the Housing
Act 2004. The main requirements were that any landlord accepting a deposit for an Assured Shorthold Tenancy from that date onwards must protect it in an authorised scheme, and must provide the tenant with ‘prescribed information’ about the scheme and the deposit. Failure to do so could result in (1) a financial penalty of up to three times the value of the deposit, and (2) the inability to serve a notice under s21 of the Housing Act 1988, the section allowing a landlord to recover possession of the property once the initial fixed term is up.

The only problem was that, owing to the way the law was drafted and interpreted, there was no real pressure for landlords to actually obey it. Faced with the need to serve notice, or a claim for non-protection of the deposit, a landlord could simply protect it at a time before the court hearing and still be found compliant with the legislation. For a time, the tenancy deposit laws were simply not working as intended, and it was something of a lax landlord’s paradise.

Enter the Localism Act 2011, which came into force in April 2012 and amended the 2004 Act to better represent the intentions behind it. As of 6 April 2012 landlords who had received deposits since 6 April 2007 had 30 days to protect them, after which they would be in default. Landlords receiving new deposits from 6 April 2012 also had 30 days to protect the deposit. If the deadline goes by, it is not possible for the landlord to protect the deposit late, after challenge by the tenant.

As noted, this has two main repercussions. Landlords who miss the deadline may find themselves looking down the barrel of a compensation claim from the tenants – or such a claim may be used to offset outstanding rent and thus defeat a rent-based possession claim. Secondly, landlords cannot serve a notice to recover the property for non-breach reasons at all – and even if there are rent arrears or other breaches, this is often the quicker, cheaper and more efficient method of removing a tenant.

For landlords who have not protected the deposit but who wish to recover possession of the property, the only ready option to clear the way to serve notice is to return the deposit to the tenant, which is likely to leave a bitter taste in the mouth.

Since the 2011 Act came into force, there have been a couple of recent cases where judicial decision has put the pressure on landlords even more.

Firstly, there was the decision in the case of Superstrike Ltd –v- Rodrigues. This involved a lease with unfortunate timing: the lease itself predated the implementation of the 2004 Act, so that, when the deposit was initially taken, nobody was even thinking about protection schemes. However, the fixed term came to an end after the tenancy deposit regime had come into force. When the fixed term of an Assured Shorthold Tenancy comes to an end, a new statutory tenancy comes into force and runs (usually month to month) until terminated by proper notice. The court ruled that, at the point when the statutory tenancy arose, the landlord had a fresh obligation to protect the tenancy. As he hadn’t, the usual penalties and prohibitions applied.

More recently, and more alarming, is the decision in the case of Charalambous v Ng. In this case the tenancy was entered into in 2002, and after renewals the final fixed term expired in 2005, meaning that the statutory tenancy arose before the initial deposit scheme legislation came into force in 2007. The landlord served notice to possess in 2012.

The court’s decision, which will surprise and dismay landlords, was that, notwithstanding the dates involved, the wording of the law means that a landlord is still prevented from serving a section 21 notice to recover possession of the property unless the deposit has been protected before the notice is served.

Landlords who accepted deposits prior to 2007, therefore, will still have to either protect those deposits, or return them, before they can serve a valid s21 notice and recover possession of their property.

Adrian Czajkowski
Adrian Czajkowski

 

Adrian Czajkowski
Commercial Dispute Resolution Department  
ACzajkowski@LawBlacks.com
0113 227 9296

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