What are the consequences for landlords who fail to protect their residential tenants' deposits?
27/01/2011
By Megan Fradgley, Solicitor in Dispute Resolution.
A recent Court of Appeal decision highlights the consequences for landlords failing to protect deposits taken from assured shorthold tenants in a tenancy deposit scheme.
Protecting your tenant's deposit
Since 6 April 2007 all landlords who let properties under assured shorthold tenancies have been obliged to protect their tenants’ deposits in a tenancy deposit scheme.
The scheme allows the tenant to oppose any proposed deductions by the landlord at the end of the tenancy and also ensures the deposit is repaid to the tenant promptly.
Section 213 of the Housing Act 2004 (the Act) requires you to place the deposit monies into the scheme within 14 days of the tenancy starting. The Act also requires you to provide the tenant with prescribed information about the scheme, also within 14 days of the tenancy starting.
When can a tenant bring a claim against you?
If you fail to either protect the deposit in the scheme, or to write to the tenant with the prescribed information, then Section 214 of the Act allows the tenant to bring a claim against you in the County Court. If this claim is successful, you can then be ordered to repay the deposit to your tenant, as well as a fine of three times the deposit.
Some earlier case law found that even if the landlord did protect the deposit, but they did so out of the 14 day prescribed period, they could still be subject to the fine. This fine seemed rather onerous for landlords who had, by the time the matter reached court, complied with their obligations.
Recent case
In November 2010, the Court of Appeal decided the case of Tiensia v Vision Enterprises Ltd which has provided some much needed guidance on this issue. In this case the Court decided that even a late compliance with their Section 213 requirements will give a landlord a complete defence to a claim under Section 214, and therefore prevent a fine being awarded. This provides some comfort to landlords, who otherwise may have found themselves subject to hefty fines for making an administrative error.
How to comply with the Act
So should you just not bother to protect deposits unless your tenant makes an application to the court under Section 213 of the Act?
This would not be advisable for two reasons:
- you may still be ordered to pay the tenant’s legal costs for bringing the application; and
- failure to protect a deposit also affects your ability to end a tenancy under Section 21 of the Housing Act 1988 by serving two months’ notice.
Therefore whilst this decision will be reassuring for landlords, it should not been seen as a reason to avoid compliance with the deposit scheme requirements.