Landlords Must Protect Tenancy Deposits

A couple of recent appearances on a specialist Sky TV programme have shown me how the legislation around tenancy deposit protection is still being flouted, albeit sometimes accidentally due to ignorance. The television programme, ‘Know your Rights’ was a ‘phone-in’. Very few questions were ‘phoned-in’, but the few that were all featured landlords who had neglected/forgotten to protect deposits.

The tenants appeared not to know that the correct procedure had not been gone through, but the landlords now wanted to evict and suddenly the realisation had come that without the correct paperwork to prove the deposit had been protected, the possession claim could be thrown out of Court.

The tenants may be unaware, but should they seek advice on the possession from a Housing Aid service, the CAB or Shelter, this would almost certainly be investigated and the advice given that the penalties would mean:

The tenancy cannot be ended on the basis of a section 21 and also

That the tenant could expect a Court to order that the maximum penalty be paid by the landlord to the tenant, which is 3 times the amount of the deposit, plus the deposit. So a £700 deposit could attract a penalty of £2800, with the tenant remaining in-situ until formal grounds apply.

For the holders of huge portfolios, this may be inconvenient (nobody wants to give money away!) but for the small scale landlord, owning only 1 or 2 properties, this could be a major blow to his profit margins and therefore, the ability he has to run his properties properly.

The advice is simple – protect the deposit NOW! This may not protect the landlord from the full weight of the law, should the tenants discover that a mistake was made by not initially protecting the deposit, but the Court may deal with the landlord more leniently as he has taken the correct steps as soon as he realised he was in error.

Only when the deposit has been protected and the prescribed information given to the tenant can the landlord proceed with issuing the section 21 notice.

For landlords who have not protected deposits and now realise they should have done so, but are currently happy with their tenants, there are a couple of options not available to the landlord desperate to get the tenants out.

The first is to return the deposit intact and decide not to hold one. Not really a good idea, as that is the only protection a landlord has (though the deposit is rarely enough to cover the arrears or damages left by a bad tenant).

The second, and probably safest, is to issue a new tenancy, having returned the deposit. A deposit is still required, so the tenant then re-pays the landlord, who protects the deposit. The new tenancy then gives you sufficient paperwork to show it has been protected within 28 days of the deposit being taken. It does mean the tenant remains for at least another 6 months, but if he appears to be a good tenant, that is no bad thing.

It is difficult to believe that the deposit protection legislation was put in place in 2007 and yet so many still do not protect. This should be a joint operation – landlord asking for and taking a deposit, tenants paying the deposit and making enquiries into which scheme it will be placed. It should be a joint responsibility, but the Courts will never see it that way. Landlords will always be expected to act within the law and will be penalised if they are found not to do so.

For advice on buy to let issues – General Knowledge