Assured Shorthold Tenancy Deposit Protection – Past, Present and Future
Where a tenancy is an Assured Shorthold Tenancy, landlords and their agents have had to protect tenants deposits within one of three government approved schemes. The legislation was drafted poorly which allowed tenants to make large claims against landlords. The result of this was various judicial decisions aimed at closing these loopholes leaving the penalties largely impotent but reconciling the legislation with the original spirit of the act to ensure that tenants had an alternate dispute resolution to tenancy disputes. This article summarises the past, present and future of tenancy deposits including what you, as a landlord or agent, should be doing now.
Since 6th April 2007 Landlords and their agents that took deposits for tenancies falling under the assured shorthold tenancy regime have had to protect the deposits in accordance with one of three recognised deposit protection schemes.
The purpose of this burden was to redress the issue of unscrupulous landlords keeping deposits or making dubious deductions. Before regulation the only redress available to tenants would be to mount a legal challenge.
The Housing Act 2004 envisioned landlords placing deposits into government approved self financing schemes that would act as an alternative dispute resolution service.
The tenancy deposit scheme provisions came into effect on 6th April 2007. The penalties for failing to register a deposit correctly were that no valid section 21 notice could be served (notice requiring possession of the property); the landlord would have to pay the deposit back to the tenant or into a scheme; and the landlord would open himself up to liability for a penalty for three times the deposit under s214(4.)
The provisions of the act removed the problem of unscrupulous landlords however the wording of the provisions left loopholes upon which several court decisions attempted to rectify.
- Draycott v Hannells  if a deposit was protected late the landlord would not be penalised.
- Draycott upheld in Tiensia v Vision Enterprises Ltd  which concluded that the latest date on which the landlord could comply with his provisions was the date of a court hearing itself. The result of this however was a castrated regime, landlords could wait right until the day before a hearing to register a tenants deposit and be able to furnish a defence (albeit they would be penalised in costs for doing so.) Only the most stubborn or misguided defendant would fall foul of the s214 penalty for three times the deposit.
- In Gladehurst Properties Ltd v Farid Hashemi  EWCA Civ 604 it was further established that once a tenancy had come to an end a claim under s214 would not succeed as only a tenant (or a person who paid on behalf of the tenant) could make a claim. The claimant would no longer be a tenant if the tenancy had ended.
As good commercial practice landlords and their agents should be protecting deposits as soon as they receive them and ensuring that they comply with their chosen schemes particular rules. At the very least failure to comply will prevent any valid s21 notice from being served and also result in problems at the deposit protection schemes adjudication stage if there is a deposit dispute. However if a landlord fails to register his deposit he can register after a claim has been filed as long as it is before the hearing and if the tenancy comes to an end the landlord no longer has an obligation to protect the deposit, a tenant would have to pursue a debt claim in the normal way through the small claims track if he believes deposit amounts have been withheld unlawfully.
The Localism Act 2011 received royal assent on 15 November and introduced amendments to the Housing Act 2004 in an attempt to rectify its shortcomings.
1.) The Financial Penalties will apply after the deadline has expired. The deadline will be extended from 14 to 30 days. Failure to protect the deposit within this time will open the landlord up to liability however the court now has a choice to award from one to three times the deposit. This will now allow the court to distinguish between landlords that simply are not aware of their duties to those that do not protect deposits intentionally.
2.) The financial penalties will continue even after the tenancy has ended.
3.) If the deposit is repaid or a claim under s214(1) has been determined, withdrawn or settled a section 21 can then be served.
The amendments have yet to have a date fixed for their appointment. Until then the current regime will continue to apply.
If you have any landlord or tenant issues please contact us on 0207 183 0084 or alternatively e-mail email@example.com.