Landlords Beware! : Tenancy Deposit Schemes

Employers who are fed up with the amount of time their employees spend on personal emails and websites may be tempted to monitor employees’ computer activities to collect evidence for disciplinary proceedings. Although technology can provide a useful tool for monitoring employees, when employers use it excessively, they risk a variety of claims. These include constructive unfair dismissal and, in some cases, breaching an employee’s Right to Respect for Privacy and Family Life (as discussed in our first article).

The provisions of the Housing Act 2004 in relation to Tenancy Deposit Schemes are now in full effect.

The intention of these schemes is to ensure:

• A clear agreement is implemented between you and your tenants from the start of the tenancy in relation to the condition of the property.
• Deposits are held by an independent entity.
• Tenants get their deposit back when they are entitled to it.
• Disputes are easier to resolve, as the schemes provide a free dispute resolution service.

Does this affect me?

If your tenant has an Assured Shorthold Tenancy (in other words, a tenancy of at least 6 months) in England and Wales and is paying a deposit of up to £25,000, you must ensure that all deposits paid are protected by a tenancy deposit protection scheme. 

What do I have to do?

You are required to give the tenant details of how the deposit monies are being protected within 14 days of taking it.  This “prescribed information” must include:

• Contact details for the tenancy deposit scheme.
• Contact details for the landlord.
• How to apply for the release of the deposit.
• Information explaining the purpose of the deposit.
• What to do if there is a dispute about the deposit.

What if I do not do this?

Failure to use the schemes and provide the necessary information to tenants will give them grounds to take a claim to the County Court (under section 214(1) of the Housing Act 2004), arguing that the initial requirements of an authorised scheme have not been complied with.

If a judge finds in the tenant’s favour, in other words, that there has been a failure to comply with the requirements of the scheme, then it must order the landlord to pay the deposit back to the tenant. And the landlord will be ordered to pay the tenant a further sum equal to three times the deposit!

However, there is some relief to landlords: in Harvey v Bamforth (Sheffield County Court, 8 August 2008), HHJ Bullimore held that the treble deposit penalty did not apply in relation to the 14 day rule. This was due to his interpretation of the Housing Act 2004, where the treble payment is the penalty for non-compliance with section 213(6)(a), but the 14 day rule appears in section 213(6)(b). 

In practice, this means that you can always avoid this penalty by providing the necessary information to your tenants just before the trial.

What exactly do I do with the deposit monies?

The law requires that landlords and/or managing agents pay tenants’ deposits into a scheme at the start of the tenancy. 

There are two types of schemes available:

• Custodial Schemes: Deposit monies paid into this free scheme are held until the end of the tenancy, when it must be repaid. 
  • There is only one provider: The Deposit Protection Service. 
  • Open to all landlords and letting agents to use.
  • Free to use, as the service is funded entirely from the interest earned on deposits held.
• Insurance-Based Schemes: Deposit monies are kept by the landlord or letting agent, with a separate amount of money paid to this scheme to insure against the landlord failing to repay the tenant any money due.  There are two providers:
  • Tenancy Deposit Solutions Limited: A partnership between the National Landlords Association and Hamilton Fraser Insurance.
  • The Tenancy Deposit Scheme: Run by the Dispute Service.

What happens at the end of the process?

The tenant is under an obligation to return the property in the same condition it was taken. You or your letting agent must therefore check the condition and contents of the property against the agreement made at the start of the tenancy.

You would then need to agree how much of the deposit will be returned to your tenants (if any), and this must be done within 10 days.

If no agreement is reached about the amount of deposit monies that must be returned, the scheme provides a free service to help resolve disputes.

As the case of Harvey v Bamforth illustrates, this area of law is still very new and much litigation will surely follow.

If you have any landlord or tenant related queries, please do not hesitate to contact Stefan Arestis: sa@silvermansherliker.co.uk