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Tenancy Deposit Schemes - Double Trouble for Landlords?
As of 6th April 2007 all landlords of Assured Shorthold Tenancies are required to safeguard any deposits received in respect of those tenancies in either a custodial or insurance based Tenancy Deposit Scheme (TDS). This requirement is imposed by the Housing Act 2004 (HA 2004) and was brought about to protect tenants from a minority of unscrupulous landlords who would seek to keep all or the vast majority of a tenant's deposit at the conclusion of the tenancy illegally according to a report by the National Association of Citizen Advice Bureaux published in 1998 ("Unsafe Deposits").
A survey taken in 2008 suggested that 62% of landlords were not complying with the TDS provisions and a more recent survey shows that up to 30% of landlords are still not complying with the Act. However, the sanctions for a landlord that does not comply with the TDS provisions are very severe and could be very costly. One can only assume that perhaps the landlords not complying fully with the TDS do not understand the scope and implications of the sanctions.
Compliance
Broadly, to comply with the TDS provisions, a landlord must place any deposit received into a relevant scheme (custodial or insurance) within 14 days of receipt of the deposit and must also provide the tenant with the prescribed information set out in Section 213 of the HA 2004 within that 14 day period. The prescribed information is basically full details of the scheme holding the deposit and other relevant details of the tenancy and the parties.
Sanctions for failure to comply
Failure to comply with those requirements leaves the landlord open to a claim by the tenant for an Order that the deposit is immediately repaid and that the landlord has to pay the tenant a sum equal to three times the amount of the deposit within 14 days. If the deposit is the usual month and half's rent, this would result in the landlord having to pay four and half months rent back to the tenant for what might have been a relatively minor administrative error.
Furthermore, the wording of Section 214 of HA 2004 dealing with these sanctions is strictly worded and therefore as long as a tenant is able to show that either the deposit was not paid in or the prescribed information was not provided to them, the Court must order the repayment and penalty as described.
This raises the question as to whether the landlord would be liable if, having realised an error in not paying in the deposit or not giving the tenant the prescribed information within that 14 day period, whether subsequently doing so could prevent him being liable for a penalty should the tenant subsequently issue a claim in this regard. In a recent case in the Sheffield County Court (Harvey v Bamforth 2008 PLSCS 250), a landlord had placed the deposit in a TDS but had failed to give the prescribed information within 14 days. The landlord subsequently realised his error and gave the tenant the prescribed information. However, the tenant then issued proceedings under Section 214 of HA 2004 seeking the three times deposit penalty. In that case the Court held that the landlord was not in breach and therefore not liable to pay the fine.
However, that decision has not been universally followed and many Courts up and down the country have taken the stance that a failure to comply with the initial requirements within the 14 day period cannot be rectified. This again appears to be unduly harsh upon the landlord and until a senior Court determines the issue landlords would be well advised to ensure that the initial requirements are complied with within the 14 day period to avoid a nasty penalty sought by a savvy tenant.
The second and potentially more onerous sanction is that a landlord is not permitted to serve a valid Section 21 Notice on the tenant if: -
(a) The deposit is not being held in accordance with an authorised TDS (custodial or insurance); or
(b) The initial requirements of a TDS including the provision of the prescribed information have not been complied with.
As with the situation described above in respect of the penalty, on the face of it, a landlord's failure to comply with the initial requirements within the 14 day period is absolute and not capable of remedy unless the landlord has a time machine. Either there has been compliance within the 14 day period or there has not. If that were the proper interpretation of these provisions, a landlord's failure to comply with the initial requirements within the 14 day period would be an absolute bar to the landlord serving a Section 21 Notice to recover possession of his property.
That, we would suggest, could not have been the intention of the legislators as it would remove the landlord's most effective tool for recovering possession and controlling his property as the landlord needs no other reason for serving a Section 21 Notice other than the fact that he wants vacant possession of the property at the expiry of the term. At the same time it would provide the tenant with a significant amount of protection for what may have been a simple administrative error on behalf of the landlord.
Until such time as the Court has clarified this matter or amending legislation is in force, the practical advice to landlords and their agents must be that they should take every possible step to ensure that the initial requirements of the TDS's are complied with within the 14 day time limit.
The article above was written by Neil Curbison a senior associate in Colman Coyle's property litigation team.
For more information on the above or for advice on any other property litigation issue please contact us on 020 7354 3000 or e-mail neil.curbison@colmancoyle.com
Date: June 2010