Deposits – how to fix non-compliance (England)

Deposits – how to fix non-compliance (England)

27 May 2021

This article is intended to give you general information on some of the remedies available when you have not handled a tenancy deposit in compliance with the relevant legislation. It is not intended as legal advice, and there is no adequate substitute to obtaining legal advice from an appropriately qualified professional based on the facts of a case. The legislative references throughout this article relate to properties in England only. Whilst Wales has broadly similar provisions in equivalent legislation; some differences are not dealt with herein.

Will Eastman, Head of Legal & Claims

The requirement to protect tenancy deposits in a recognised scheme was introduced by the Housing Act 2004. However, this has changed over time with the introduction of several other acts, such as the Localism Act 2011, the Deregulation Act 2015, the Renting Homes (Wales) Act 2016 and to some extent, the Tenant Fees Act 2019 or the Renting Homes (Fees etc.) (Wales) Act 2019. The purpose of the evolving legislation is to regulate how tenant’s funds are held and handled.

Despite having been in force for over a decade, I still come across non-compliance with the requirements on a reasonably frequent basis. In most cases, the failure to comply arises from mistakes, which are relatively minor in substance, made by a landlord or employees within their chosen managing agents. Unfortunately, however, there are still many landlords out there who are unaware of their obligations regarding the tenant’s deposit.

Whilst complying with the requirements in the first instance is the “right” way of handling deposits and the only way to avoid complications later on in a tenancy, there will always be occasions when things do not go as planned. It is, therefore, just as important to know what to do when you realise you haven’t complied.

Requirements

As I have said above, the Housing Act 2004 required a landlord to safeguard a tenant’s deposit in a recognised scheme. The rules vary over time and will differ depending on when the deposit was taken. The overwhelming majority of cases our customers deal with today relate to deposits taken after 06 April 2012, and therefore, that is what this article will focus on.

It is a statutory requirement for any deposit paid in connection with a tenancy to be dealt with in compliance with a recognised scheme within 30 days of receiving the funds1. There is also a requirement to provide the deposit payer with prescribed information2 within the same 30 day period.

While most of the prescribed information is provided to the landlord and tenant by the chosen scheme, the landlord must ensure the tenant has received this information and details when and why deductions may be made. That is why most landlords and their Managing Agents will often give this information to the tenants again, either alongside the tenancy agreement or within it.

What is Prescribed Information with regards to a tenancy deposit?

The following information must be sent to a deposit payer:

  • The chosen scheme provider’s contact details;
  • Any information that the chosen scheme provider has given, which explains the operation of the scheme;
  • The process of repaying the deposit;
  • The process to be followed if either; the landlord or the tenant is uncontactable;
  • The details of what process to follow in the event of a dispute;
  • The prescribed information also includes:
    • The amount of the deposit;
    • The address of the property to which the deposit relates;
    • The landlord’s (or agent’s) and tenant’s contact details;
    • The contact details of any third party with interest in the deposit; and
    • Circumstances when the landlord may retain part, or all, of the deposit (usually the tenancy terms).

The landlord, or their agent, must then provide a signed certificate that states the information given is accurate and allows the tenant to sign3.

At this point, it is worth noting that whilst in time the position may change, as there is a pending appeal, the current position is that where the landlord or the Agent is a corporate body, the certificate must be signed in compliance with S44 Companies Act 20064. Suppose a third party, such as a tenant’s parent or a local authority, pay the landlord or their agent deposit funds. In that case, the landlord or their agent must also provide the third party with the prescribed information within 30 days of receiving the funds. Where the third party has paid the funds to the tenant, for them to pay the landlord, it is only the tenant (i.e. the person paying the deposit) that must be given the prescribed information.

Non-Compliance and the Penalties

If the landlord, or their managing agent, fails to comply with the requirements set out above, the tenant is entitled to apply to the Court5. This application can seek a deposit to be returned to the tenant within 14 days6 and the landlord to pay compensation to the tenant. The payment will be between 1 and 3 times the value of the deposit being held7.

When in breach of the deposit requirements, a landlord is also precluded from serving and relying on an S21 Notice. Although a landlord is not prevented from serving and relying on an S8 Notice, where they do so purely on a rent arrears basis, they should be aware of the risk of losing their mandatory right to possession during any later proceedings. This is because a tenant would more likely raise the landlord’s non-compliance during possession proceedings or after having given up possession rather than during occupation of the property. In addition, where a tenant succeeds with a claim against the landlord, compensation will be offset against any arrears. If this brings the balance of arrears below the equivalent of two months, the landlord will lose mandatory grounds for possession.

Remedying Non-Compliance

It is worth saying at the outset that when a landlord or their agent has failed to secure the deposit and serve prescribed information within 30 days of receipt of the funds, there is nothing that can be done to altogether remove the risk of having a tenant bring a compensation claim.

However, the landlord can take positive action to reduce the possible amount of compensation awarded to the tenant and allow them to serve and rely on an S21 notice.

  • Complying with the deposit requirements at the earliest opportunity may mean that the tenant is awarded a lower amount of compensation if they do make an application. Therefore, if the landlord is not seeking possession of the property and has identified they have fallen foul of the requirements, it would be wise to consider returning or securing the deposit and providing the prescribed information straight away.
  • If the landlord wishes to serve and rely on an S21 notice and has failed to secure the deposit within 30 days, they must return the entire deposit to the tenant8. However, nothing prevents the landlord from agreeing with the tenant to use the deposit on other things, such as outstanding rent in arrears or repairing damaged property caused by the tenants. However, the tenant must agree to use the funds in that way.

    Where the landlord has secured the deposit within 30 days but has served the prescribed information late or hasn’t provided it at all, they can serve an S21 notice after having served the tenant with the prescribed information.
  • As alluded to above, there is nothing to preclude the serving and reliance on an S8 Notice. However, it would be best if you did so with caution, given the potential for the tenant to claim compensation in offset and, therefore, reduce the arrears.

The Tenant Fees Act 2019

This act came into effect on 01 June 2019 and applied to all tenancies in England from 01 June 2020. The equivalent in Wales is the Renting Homes (Fees etc.) (Wales) Act 2019, and that act applies from 01 September 2019.

The act introduces a cap on the value of a tenancy deposit required from a tenant(s). There are two upper limits, and the one that applies is dependent on the annual value of rent charged. First, where the annual rent is less than £50,000, the tenancy deposit must not be more than the equivalent of 5 weeks rent. This limit then increases to 6 weeks for annual rents above £50,000.

Any sum taken over these caps is a prohibited payment and will need to be returned within 28 days to avoid being held liable for the penalties under the act. A landlord is precluded from serving an S21 notice until all prohibited payment is returned to the ‘relevant person’9.

Thanks

Will Eastman
Head of Legal & Claims


1S213(3) Housing Act 2004
2S213(5) and S213(6) Housing Act 2004
3Housing (Tenancy Deposits) (Prescribed Information) Order 2007, SI2007/797 as amended by S30 Deregulation Act 2015
4Northwood Solihull Ltd v Fearn & Cooke [2020] EWHC 3538 (QB)
5S214 Housing Act 2004
6S214(3) Housing Act 2004 as amended by S184 Localism Act 2011
7S214(4) Housing Act 2004 as amended by S184 Localism Act 2011
8S215(2A) Housing Act 2004
9S17(3) Tenant Fees Act 2019 or Schedule 3 Renting Homes (Fees etc.) (Wales) Act 2019

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