According to recent reports, as many as three out of four landlords have not registered with one of the Government approved tenancy deposit schemes some eighteen months after new legislation required all landlords, taking deposits, to do so.
Non-compliance will lead to problems for those landlords when they want to recover possession of their property. The accelerated procedure for possession, following service of a Section 21 Notice, for removing a tenant at the end of the term of the tenancy cannot be used if the deposit has not been protected by one of the approved schemes. The implications are serious because, if a tenant refuses to vacate and is not in breach of any of the provisions of the tenancy agreement, the landlord has no mechanism for removing that tenant.
Non-compliant landlords should also be aware that a Court can order that a tenant be compensated by a payment of three times the value of the deposit. Fortunately for landlords, most tenants are unaware of this potential windfall, leading to few applications to date. However, with increasing publicity on the subject, many landlords could find themselves with hefty money judgments against them.
The legislation requires a landlord who entered into an assured shorthold tenancy agreement after 7 April 2007 to:
Place any deposit in one of the Government approved schemes within 14 days of receipt of the deposit monies
Notify the tenant of the scheme into which the deposit has been placed, with details of the administrator and the procedure to be followed should a dispute arise. The information that is required to be supplied to the tenant is prescribed by the Housing (Tenancy Deposits) (Prescribed Information) Order 2007
If these conditions are not observed, a landlord cannot use a Section 21 Notice to remove his tenant.
The good news is that a landlord can conform at any point during the tenancy and, once he is fully compliant, he will be able to use a Section 21 Notice. He may also defeat a claim by a tenant for compensation, by simply putting the deposit into a scheme and notifying the tenant. As long as this takes place before Judgment is entered, the tenant will not be awarded compensation (though the landlord may still be required to pay the tenant's costs).
We can report that those landlords who are complying are positive about how straightforward it is to register. The various schemes also offer a free dispute resolution service in the event of a dispute about the return of the deposit at the end of a tenancy. This free adjudication service avoids costly litigation and resolves the problems of both landlords and tenants easily and quickly.
We would strongly recommend all private landlords to register for one of the tenancy deposit schemes and details of these, including how to register, can be found at www.direct.gov.uk/en/TenancyDeposit/index.htm.
This article was first published in NewsBrief, Autumn 2008.
For more information or advice on tenancy deposit schemes, please contact
Mary Rouse.
