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Measures Protect Tenancy Deposits

The Housing Act 2004 introduced measures to protect a tenant’s deposit where an assured shorthold tenancy of residential premises was created on or after 6 April 2007. The Act imposes sanctions upon landlords who fail to comply, and seeks to prevent landlords from recovering possession of the property unless the landlord has complied with the requirements of the scheme, rendering a Section 21 Notice invalid.

The provisions of the Act were designed to prevent landlords from failing to return the deposit by ensuring the landlord paid the deposit into a recognised scheme. The landlord is also required to serve the tenant with prescribed information regarding the scheme within 14 days of receipt of the deposit.

On 1 October 2010 the annual rent limit was increased from £25,000 to £100,000 so the vast majority of residential tenancies created after 1 October will be governed by the assured shorthold tenancy regime.

A key feature of the Tenancy Deposit Scheme is to provide a method of alternative dispute resolution, so that court proceedings can be avoided if any arguments arise between landlord and tenant regarding the return of the deposit.

Where a landlord has failed to protect the deposit in line with the Act, a tenant is able to apply to the court for a financial penalty to be imposed upon the landlord in a sum equivalent to three times the amount of the deposit.

The sanctions imposed by the Housing Act 2004 were considerably watered down by the Court of Appeal in the decisions of Tiensia –v- Vision Enterprises Limited and Gladehurst Properties Limited –v- Farid Hashemi.  However the decision in both cases will be reversed by the provisions of the Localism Act 2011 when it comes into force. As yet there is no timescale set for the implementation of the relevant provisions of the Act.

The provisions of the Localism Act 2011 will extend the deadline in which the landlord must protect the deposit and provide the requisite information to the tenant from 14 to 30 days.

The court will also have a discretion to decide what financial penalty to impose upon a landlord who fails to comply of between one and three times the amount of the deposit.  The court will no doubt take into account the landlord’s explanation for the failure to comply, the length of the delay and any adverse consequences for the tenant.

Once the landlord has remedied the situation, paid the deposit into a recognised scheme and served the tenant with the requisite notice, the landlord can go ahead with the service of a Section 21 Notice upon expiry of the fixed term.

A prudent landlord will ensure steps are taken to comply with the requirements of the Housing Act 2004 as to the protection of the tenant’s deposit.