All Change for Deposits

Now readers are a pretty select bunch, and will know that there is an important change to the rules on protecting deposits for Assured Shorthold Tenancies coming into effect on 6th April 2012.  They will also know that in many ways the changes are about restoring things to the position that the legislators thought they were when they enacted the current rules in the Housing Act 2004. But it is an important change that will no doubt catch various people unawares, so it does no harm to set it out again.

The theory is unchanged: deposits paid by AST tenants have to be protected by putting them into a scheme that will

  • pay up if the landlord does a runner, or goes bust, and
  • provides an adjudication process to deal with arguments about deductions for damage etc.

The problem was that the method the government used to make sure that landlords actually did this, rather than using the deposit money as working capital (or the holiday in the Bahamas fund) as they did previously, was not only to stop a defaulting landlord serving a s21 notice, but also to allow tenants to claim draconian penalties of three times the deposit for even trivial failures, and this caused landlords and their lawyers to be inventive and persistent. The result was a series of cases that ruled that a landlord was not at risk of penalties if he protected the deposit by the day of the court hearing (Tiensia v Vision Enterprises) or if the tenancy had ended (Gladehurst v Hashemi). As it takes a remarkably stupid landlord not to notice the first of these, and most claims arise in practice after the tenant moves out and wants his deposit back, this rather ruined the scheme. Other commentators used much more colourful language.

So here’s the legislator’s second attempt. The key changes are:

  • Landlords have 30 days to protect the deposits instead of 14 days as before,
  • Courts have a discretion to pay between one and three times the deposit as a penalty,
  • If the deposit is not protected in time late protection won’t stop the penalty, and won’t let the landlord serve a s21 notice until he repays the deposit, or concludes the tenant’s court action,
  • Ex-tenants can make claims unless their deposits have been returned to them.

Note the rules apply to ALL ASTs that are in force on 6th April, so if a deposit (paid since 2007) has not been protected by then the landlord has until 6th May to sort things out.

I think that the thinking is that if you provide a more reasonable scheme then landlords won’t try so hard to get round it. Time will tell it this is right.

This is just a flag so you know you’re entering a minefield. If you or your clients merely want to operate things then get in touch with one of the Deposit Protection Schemes and they will provide all the notices etc that they need.

If you want lots of detailed advice then look on The Landlord Law Blog written by Tessa Shepperson http://www.landlordlawblog.co.uk  who is helpfully running lots of articles about this for the next week or so. Or go to Nearly Legal  http://nearlylegal.co.uk/blog/ who will analyse the law into fancy shapes in a thoroughly understandable way.

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