Any deposit taken for an assured shorthold tenancy which has been entered into after 6 April 2007 needs to be protected and put into a tenancy deposit scheme (TDS).
A TDS has two main purposes. These are:

  1. To protect the deposit and to ensure that it will be returned to the tenant at the end of the tenancy (unless the landlord has a genuine claim on it); and
  2. To help to resolve any disputes between the tenant and landlord via alternative dispute resolution.

Duties as a landlord

In order to properly protect the tenant’s deposit, there are a number of requirements that a landlord must meet.

  • The deposit must be paid into the scheme within 30 days of receipt of the deposit.
  • The “initial requirements” of an authorised scheme must be complied with by the landlord within 30 days from the date of receipt.
  • The landlord must give the tenant or a relevant person (e.g. someone who pays the deposit on behalf of the tenant) prescribed information about the deposit and where it is held. Again this should be given within 30 days of receipt of the deposit. It is advisable for landlords to ask their tenants to sign to confirm receipt of this information. The prescribed information consists of the following:
    • Full contact details of the scheme administrator of the authorised TDS.
    • Any information contained in a leaflet supplied by the TDS administrator to the landlord.
    • The procedures that apply at the end of the tenancy in respect of the deposit.
    • The procedures that apply in the event that there is a dispute between the landlord and the tenant.
    • The options available for enabling a dispute relating to the deposit to be resolved without involving the courts.
    • Amount of deposit paid.
    • Address of the tenanted property.
    • Full contact details of the landlord, tenant and any relevant person.
    • Circumstances when all or part of the deposit may be retained by the landlord, according to the terms of the tenancy agreement.

Penalties

The TDS legislation imposes penalties on those landlords that fail to comply with the rules.

Financial sanctions

If a landlord fails to pay the deposit into the scheme and/or fails to comply with the initial requirements of the scheme within 30 days of receiving the deposit (or indeed at all), he may face financial penalties. A tenant may apply to the court for an order that the deposit be returned. Within the same application he may ask the court to order that the landlord pays him a further sum of one to three times the amount of the deposit. The court has a discretion as to how much it will order the landlord to pay. The court will take into account the landlord’s conduct in relation to the deposit.
For example, if a landlord takes a £500 deposit but does not protect it, he could face an order that:

  1. He returns the £500 to the tenant; and
  2. He must pay the tenant a further £1,500 as a sanction.
Landlord may not recover possession by serving a s21 notice

If a landlord does not protect the deposit, or has not complied with the initial requirements, he will be prohibited from serving a section 21 notice to recover possession of the property. He can, however, serve a s21 notice if he pays the deposit back to the tenant in full.
Likewise, if a landlord has protected the deposit, but has failed to give the tenant the prescribed information, he will not be able to serve a section 21 notice. This can be remedied by providing the tenant with the required information.
Even where the rules have not been complied with, a landlord may still be able to serve a s8 notice if he has grounds for possession. It is important to note, however, that if the ground for possession is rent arrears, the tenant could counterclaim for the sum of up to three times the deposit. This could take the level of rent arrears down substantially. It is at the discretion of the court whether to impose a financial penalty on the landlord.
As can be seen, it is vital that landlords know what is required of them, and comply in good time. If you have any queries in relation to tenancy deposit schemes, our property disputes team can assist. Call us today on 0800 988 7756.
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