The rules concerning precisely what landlords must do with deposits they receive have rarely been out of the legal news since April 2007 when the Housing Act first implemented the “new” regulations.
Landlord’s should be aware that the courts are treating these rules a little more seriously after appearing to water down the effect of the regulations when they first came into force.
To consider the recent developments, it is best to start at the beginning so that we can be fully aware of the purpose and development of the rules over the last six years.
In April 2007 it became mandatory for all landlords of assured short-hold tenancies to protect any deposit they received in a relevant scheme. The landlord had to pay the deposit into the scheme within 14 days of receipt and also provide “prescribed information” to the tenant within those 14 days.
If the landlord failed to comply with this then the Housing Act stated that, not only would any Section 21 Notice served on the tenant be invalid, but in addition the deposit and three times that amount would have to be returned to the tenant as compensation.
There were subsequently two cases that appeared to suggest that the implications for landlords of not complying with these rules weren’t as bad as they appeared.
Firstly, in Universal Estates v Tiensia it was held that provided the landlord had paid any deposit into the relevant scheme by the time any proceedings brought by the tenant came to a hearing, and then the landlord was deemed to have complied with the regulations. This meant that there was very little point in the tenants bringing any court proceedings as the landlord could always pay the deposit in once court proceedings were issued.
There was then, in May 2011, the case of Gladehurst Properties Ltd where it was held that once a tenancy has ended a tenant would not be able to bring any such claim in the County Court.
At this point in time there seems to be little point in landlords straining to comply with the regulations – other than in order to ensure that any Section 21 Notices were valid.
Things began to change in April of last year when the Localism Act came into force. This amended the Housing Act and provided that the landlord now had to comply with the deposit requirements within 30 days of receiving the deposit rather than 14. At the time, many commentators speculated that this would mean the courts would be less lenient with landlords that failed to either protect the deposit or provide the relevant information.
In addition, the Localism Act specifically stated that tenants were able to make court applications even after their tenancy had ended – this effectively overruled the decision in Gladehurst Properties Ltd.
The case that really caused landlords to sit up and take notice was decided in November 2012.
In Ayannuga v Swindells we finally saw the tougher approach that the courts were expected to adopt. In this case, the landlord had protected the deposit and even attempted to provide the prescribed information to the tenant. They did, however, miss out some of the information that they were required to give and the court held that, as a result of this, the Section 21 Notice served by the landlord was invalid and that in addition the landlord had to pay the tenant three times the deposit as compensation.
This case has really reminded landlords and tenants alike that failure to comply with the deposit protection rules can be particularly costly and our recommendation is that landlords, letting agents and tenants should all seek legal advice on this point as the consequences of failing to comply are significant.a