For a general view and background on tenancy deposits, please refer to the tenancy deposit guide. For those of you that are familiar with the legislation but have failed to protect their tenants’ deposit, you’re in the right place.
Without a doubt, this is one of the most common dilemmas landlords are finding themselves in today.
The sad and blunt truth is, you’re most likely in this predicament because you either didn’t bother doing any independent research before becoming a landlord, or you failed to keep on top of legislations (which is something all landlords should be doing regularly). Just needed to get lecture out of the way.
What is expected?
First, let’s briefly look over what the legal requirements are when a landlord has received a tenancy deposit.
To be in compliance with the Section 213 Housing Act 2004, landlords must protect their tenant’s deposit into an approved scheme and serve all prescribed information with in 30 days of receipt. It is important to note that the date the deposit is received may not be the same date as when the tenancy starts, typically deposits are received before.
What if the deposit isn’t protected?
There are generally two major concerns for landlords if the deposit is not protected and the prescribed information is not served:
- 1) You will not be able to serve a valid Section 21 notice (Notice of Possession). That means if you want to legally repossess your property upon the ‘no fault ground’ at the end date of a tenancy, you won’t be able to via the Section 21 route. Bearing in mind, this is generally the easiest and most reliable way of repossessing your property.
- 2) The tenant may make an application to seek a return of the deposit and also prosecute for further compensation. The Court can award an amount between one and three times the deposit amount. It is up to the Court to decide how much is appropriate based on their discretion.
What should you do?
From my experience, most landlords frantically start becoming concerned about their non-compliance based on one or more of the following reasons:
- Their tenants have discovered they can prosecute the landlord and potentially make a quick buck (in this case, the landlord may or may not have been familiar with the legislation).
- The tenant is blackmailing the landlord to pay compensation, or consequently face legal action (again, the landlord may or may not have been familiar with the legislation). This is unbelievably common, which is pretty sad.
- Whilst looking into serving a section 21, the landlord has discovered they cannot serve a valid notice because they didn’t comply with the law.
- Landlord recently discovered they were obligated to secure the deposit through no forced scenario and is determined to comply with the law. This is usually the rarest scenario, because usually there’s a reason for why a landlord would discover the existence of the legislation when it’s too late. Most other landlords keep their ear to the ground and stay on top of the legislations and comply.
- Landlord forgot (not sure how many people will believe this one!).
Sound familiar? Unfortunately, whatever the case maybe, you have no defense, and you’re currently prone for prosecution.
So what should you do? Based on the cases and advice I’ve read, there are three prospective options here:
- 1) Return the deposit to your tenant.
Assuming your tenant isn’t threatening/blackmailing you, your best bet is explain to your tenant that you forget to secure the deposit (I wouldn’t mention the possibility of them being able to prosecute if they aren’t already aware), and then return the full amount. This will mean you will have no security deposit to cover any damages, but you will be able to serve a valid section 21 notice.
I would get written confirmation that the deposit has been returned and return the deposit in a traceable form e.g. cheque or bank transfer.
2) Allow the tenant to prosecute (if it’s heading down that road).
If the tenant brings a claim which has been determined, withdrawn or settled by the court, this will then allow the landlord to serve a valid section 21 notice.
3) Terminate the tenancy by getting the tenant to surrender the tenancy and return the deposit, and then start a new tenancy with the same tenants.
You will probably need understanding tenants for this method to work. But you never know, people can be surprisingly helpful.
Does anyone else have any additional tips to share? Do you have any experiences to share regarding this matter, weather you’re a landlord or a tenant? I’d love to hear your story!