Deposit Regulations – common breaches and how these can be rectified
Many landlords take a deposit at the beginning of the tenancy. However, few landlords understand the rules and requirements relating to deposits which can have grave consequences for them.
There are four very common mistakes, as follows: –
- Taking a Prohibited Payment
- Not protecting the deposit in time
- Not serving the full complete version of the prescribed information together with exhibits.
- Failing to update the deposit information when necessary
Prohibited Payment
There are certain payments a landlord can and cannot take if the tenancy commenced on or after 01/06/2019. Payments that a landlord cannot make are called ‘prohibited payments’. One payment landlords are allowed to take is a holding deposit. This must be paid back to the tenant when they begin occupying the property or used as part payment of the first months’ rent. Another permitted payment is a deposit that will then be returned to the tenant if they have not breached their tenancy agreement. A landlord must not take more than 5 weeks’ rent as a deposit unless the yearly rent is £50,000 or above in which case 6 weeks’ rent is acceptable (Sch.1 of the Tenant Fees Act 2019). Any sum exceeding the deposit cap is deemed a prohibited payment. This rule does not apply to tenancy agreements beginning prior to 01/06/2019 unless a renewal agreement has been entered into after 01/06/2019. It is important to follow the strict rules when taking a deposit as a single penny over the limit is a breach of the rules.
Protection of the Deposit
The deposit must be protected in one of three government schemes and the signed prescribed information provided to the tenant and anyone who contributed to the deposit (“the Relevant Persons”) within 30 days of receipt of the deposit. The three schemes are ‘MyDeposits’, ‘Tenancy Deposit Scheme’ and ‘Deposit Protection Service’.
Prescribed Information
It is important to ensure that the prescribed information complies with the requirements outlined in Article 2 of the Housing (Tenancy Deposits) (Prescribed Information) Order 2007. While the deposit schemes often have a template to assist landlords with the prescribed information, they are not always complete. It is the landlord’s responsibility to ensure all necessary information is provided on the form and that the tenancy agreement has the necessary information if being referred to. Any ‘terms and conditions’ or ‘leaflets’ must also be provided to the Relevant Persons within 30 days in accordance with the Scheme’s rules.
Updated Prescribed Information
Each time there is a ‘material change’, the landlord needs to amend the prescribed information and re-serve it on all Relevant Persons. A material change would be as follows:
- Change to the tenants (one tenant leaves or moves into the Property)
- Change of the landlord- following the ruling in the case of Sebastiampillai v Parr [2019], if a new landlord purchases a property or takes over the tenancy with an existing tenant in situ, they must re-protect the deposit and provide the tenant with the updated prescribed information within 30 days of the deposit being transferred to the new landlord. Failure to do so will prevent the landlord from relying on a section 21 notice until such time as the breach is rectified.
- Change to the protection scheme being used.
- Change of the deposit sum.
Rectification of breaches
If certain rules and requirements are not met two things may occur;
1. the landlord will be unable to rely on a section 21 notice to regain possession of their property until the breach has been rectified and a new section 21 notice has been served.
2. The tenant can make a claim against the landlord for financial compensation and have the deposit returned to them.
It is essential to understand where the common errors are made, how to avoid them and how to rectify them, if made.
Many landlords are unaware of their duties and do not protect the deposit within 30 days of receipt. If this occurs, it is best practice to return the deposit to the tenant so that a section 21 can be relied upon. Alternatively, and while it does not prevent a possible claim being made against the landlord for the breach, you may wish to protect the deposit as soon as possible under a scheme after the 30 days – this could potentially help to mitigate the level of damages sought against you if a claim is brought by the tenant.
Another common error is that landlords do not provide the complete and signed prescribed information within the same 30-day deadline or will supply the tenant with insufficient prescribed information including the deposit leaflet. If this occurs, while it is best to return the deposit, this may not be required. Serving updated prescribed information that fully comply with the rules can often mitigate the situation and will allow the landlord to rely on a section 21 notice If any of these are missing or inadequate, then a breach of the rules has occurred.
If a breach has occurred and the landlord wishes to serve a section 21 Notice, then the landlord can only rely on a Notice if it was served on the tenant after the breach was rectified. If the deposit taken was above the aforementioned limits, then returning the deposit to the Relevant Persons, in full, or in part, so that it is below the limit and re-serving updated and accurate prescribed information would not invalidate a Notice served thereafter.
If the deposit is protected late or not at all, then this would invalidate the Section 21 notice, and the deposit should be returned prior to serving a new Section 21 notice.
If the deposit was protected within 30 days of receipt but the prescribed information was incomplete, then re-serving accurate and complete prescribed information prior to serving a Notice would ensure validity of the Section 21 Notice.
Any breach by the landlord allows the tenant to seek compensation. If a breach is held to have occurred, the Court must order the landlord to return the deposit and pay compensation between 1-3 times the deposit amount to the tenant.
If any breach occurs, it is best to mitigate the issue immediately as the Court finds that the landlord’s culpability is the main factor in determining whether 1 to 3 times the deposit should be awarded. It is rare for a landlord’s naivety to be a valid partial defence to a tenant’s claim. Therefore, it is in a landlord’s best interest to familiarise themselves with the deposit rules and only take a deposit if they comply with all statutory requirements.
By Matthew Andruchow
Disclaimer: The content of any article posted on this website is for general information only and shall not be deemed to be, or constitute legal advice on any general or specific matter.