Neil Spurrier explains how deposits paid by anyone living in a flat under an Assured Shorthold Tenancy is protected by the Housing Act 2004.
The government continues to take a surprisingly laissez-faire attitude towards the way in which the holding of flat owner’s money by landlords and property managers is regulated. This is in stark contrast to the legislation applied to client’s money within the short lettings sector under the Assured Shorthold Tenancy Rules.
Since 2007, tenants under Assured Shorthold Tenancies (which are the bulk of all residential lettings), who are required to pay a deposit, have had the protection of the Housing Act 2004. This Act created the prescribed Tenancy Deposit Schemes. Under the schemes, a tenant’s deposit money is protected from a landlord running off with the money or failing to return it at the end of the tenancy. There are two types of scheme:
- Custodial Scheme; and
- Insurance Backed Scheme.
The first of these requires the money to be paid over to the Government’s named deposit taker and the second allows the landlord’s agent to keep the money in a separate client account provided that the agent has in place approved insurance against non-return.
The penalties for landlords who do not comply with the law are draconian. Until recently, a landlord could not get his property back unless and until he had put the deposit into one of these schemes. Second, the landlord would either have to pay the deposit into a Custodial Scheme or, at the Court’s discretion, the tenant was entitled to his deposit back plus, in either case, a mandatory penalty of three times the amount of the deposit. Similar sanctions were applicable if the landlord had not, within 14 days of the payment of the deposit, given to the tenant the prescribed information about the tenancy deposit scheme that is being used.
Two recent cases detracted from these sanctions: Tiensia v Vision Enterprises Ltd [2012] and Gladehurst Properties v Hashemi [2011]. In Tiensia the court found that a landlord, who failed to pay the deposit into a scheme and was sued for the penalty, could avoid liability if he subsequently paid the deposit into the scheme before the court Hearing.
Gladehurst went further and provided that if the tenancy had expired by the time that the tenant brought his claim there was no liability at all. Gladehurst in particular caused tenants problems since many tenants may not find out that their deposit has not been paid into a scheme until after the end of the tenancy when the tenant has asked for his money back.
The Localism Act 2012, which came into force in April 2012, redresses these effects. It is now no longer a defence for a landlord to show that he has complied with the deposit requirements by the time of the court hearing. The original failure to pay the deposit into the Scheme is enough. In addition the fact that a tenancy has expired is no longer a defence to a claim brought by a tenant. The penalties are claimable not only for a failure of the landlord to pay the money into a deposit scheme but also for a failure to supply the tenant with the prescribed information within a time limit – now extended from 14 to 30 days of receipt of the deposit. Note that the receipt of the deposit money is the critical date. So, if a deposit is taken by the letting agent ten days before the tenancy is actually completed and the prescribed information is not given until 21 days after completion of the tenancy agreement, the requirement will not have been met and the landlord is liable. The penalty of three times the deposit has now become a maximum penalty rather than a mandatory amount, although some penalty of at least an amount equal to the amount of the deposit is still mandatory. There is therefore an incentive for a landlord to rectify the position if he has defaulted.
Neil Spurrier is a Consultant Solicitor at Aston Rose (West End) Limited, London
Tel: 020 7629 1533
Email: [email protected]
Website: www.astonrose.co.uk
