Tenant Deposits & Section 21 of the Housing Act - Closing The Loopoles

The Housing Act 2004 (which did not come into force until 6th April 2007) introduced the requirements for landlords to register deposits paid by their shorthold tenants in an authorised scheme, and to give the tenant prescribed information relating to that scheme within 14 days of receipt of the deposit. The prescribed information is set out in the Housing (Tenancy Deposits) (Prescribed Information) Order 2007.

The 2004 Act gave the tenant the right to apply to the court if these requirements were not met, and the court could order a landlord to pay the money into an authorised scheme. This Act also provided that the court “must” in these circumstances court order the landlord to pay the tenant compensation of 3 times the amount of the deposit within 14 days.  This Act also provided another sanction – no Section 21 Housing Act 1988 notice could be given unless the provisions were complied with.

Not surprisingly, these provisions provoked a considerable amount of legislation. In practice, the intention of this Act was considerably watered down, and so long as the deposit was protected at some stage (even after the issue of proceedings) the landlord by retrospectively protecting the deposit would escape financial penalty. Another issue was that once the tenancy ended the tenant was not entitled to claim compensation (even if a statutory tenancy followed on immediately).

The legislature has now attempted to rectify these loopholes by provisions set out in the Localism Act 2011.

When did the changes come into effect?

The relevant provisions came into force on 6th April 2012 and mean that:

• New tenancies created on or after that date will be covered by the new requirements;
• Tenancies created before that date had to comply within 30 days (if they have not already done so);
• They only apply to court proceedings started after 6th April 2012.

What are the new provisions relating to deposits?

• The deposit must be protected and information regarding the scheme into which the monies have been paid must be given to the tenant as before, but the new period is 30 days of receipt of the deposit. However, this is an absolute limit, and from day 31 the tenant  can apply to the court for compensation;
• The compensation will be the return of the deposit and a penalty of between 1 and 3 times the amount of the deposit, at the court’s discretion.   This claim can still be made even if the landlord protects the deposit by paying it into an authorised scheme late, but if he does so, this factor will be taken into account by the court in deciding the penalty to award;
• No Section 21 Housing Act 1988  notice can be served until either:
  • The landlord returns the deposit to the tenant in full or with deductions which the tenant agrees or
  • If the tenant has taken proceedings against the landlord for non protection  of the deposit and those proceedings have been concluded, withdrawn or settled;
• If the landlord has protected the deposit but has not served the prescribed   information, he can do this late (i.e. after 30 days from receipt of deposit) but he   cannot serve a Section 21 Notice until this has been done.
• Tenants can apply to the court for a penalty award, even where the tenancy has ended.

What if a landlord has not complied with the new provisions?

See above – the tenant can claim compensation and no Section 21 Housing Act 1988  notice can be served unless the deposit is returned.

If you wish to discuss any matter arising from this article or any other employment problem please contact Janet Long by email  to j.long@pj-h.co.uk

The contents of this article are intended for general information only.  It is not a substitute for legal advice, and shall not be deemed to be or constitute legal advice.  We therefore cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. We will, however, be pleased to advise you on the specific facts of your case