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More changes to the rules about Deposits

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Recently, the rules concerning the protection of a tenant’s deposit have been watered down by a number of cases. There has now been a shift in favour of the landlord.

In recent years the rules concerning tenants’ deposits (found under the Housing Act 2004) have rarely been out of the legal news.  I have written three recent articles, each one explaining how the rules, which are designed to help protect tenants and their deposits, have been gradually watered down.  There has now, however, been a shift in favour of the landlords.

To recap, since 6 April 2007 many private landlords have been obliged to pay a deposit that they receive from their tenants into a protected scheme and to notify the tenants about this within 14 days.  The legislation appeared to suggest that if the landlord did not comply with both of these demands, then the tenant could bring a claim against their landlord for up to three times the amount of the deposit as compensation.

The regulations were then watered down by a Court of Appeal case (Universal Estates v Tiensia) that stated that if a tenant was to sue their landlord, then provided the landlord made sure the deposit was paid into the scheme before the hearing date, they would have complied with the obligations.  A second case (Gladehurst Properties Ltd –v-  Fareed Hashemi) then went further and said that once a tenancy had ended and the tenant had left the property that they were renting, they may lose their right to bring a claim against the landlord for the compensation as set out above anyway.

Many legal experts had gone as far as to suggest that there was no point in landlords complying with the regulations anymore (unless they were intending on serving notices on the tenants).  However, all is likely to now change.

Once the Localism Act 2011 comes into force, it is believed that the penalty (up three times the deposit as compensation) is to apply if the landlord fails to comply with the requirements in the time frame referred to in the legislation, rather than by the hearing date.  In addition, the tenant will also be given the right to make this application to the Court even after the tenancy has ended.  One other small change is the landlord will be allowed 30 days instead of 14 to give notice to the tenant that the deposit has been properly protected, although given the other changes it is unlikely that this will prove much of a consolation to landlords. 

The even bigger concern facing landlords is that it has been suggested that the above changes may even have retrospective effect.  This means that the changes could potentially apply to landlords and tenants whose tenancy ended some time ago.  The position will be clarified when the Commencement Order is made (April of this year).  However, in the meantime, all landlords should absolutely ensure that they start strictly complying with the deposit protection requirements.  Otherwise, they may find that they are subject to the penalties that they had previously thought were avoidable.

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