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Tenancy deposit

Introduction

Tenancy deposit schemes came into force on 6 April 2007 (Housing Act 2004, s212). The idea behind the schemes is to safeguard tenancy deposits and to provide ADR methods of resolving disputes in relation to them. There is one “custodial scheme" into which deposits are paid and held in a separate account which is operated by the scheme administrator. There are also two "insurance based schemes" where the landlord retains the deposit and any failure on the part of the landlord to pay it to the tenant is covered by the scheme's insurance arrangements. Since the April 6, 2007 it has been compulsory for the landlord to place any deposit taken in respect of an assured shorthold tenancy into one of the approved schemes.

The tenancy deposit provisions were substantially amended by the Localism Act 2011, which came into effect on 6 April 2012. The majority of the changes relate to the penalties that a landlord must pay if it fails to protect the deposit. However, there were also amendments relating to the service of a s21 notice.

Is it a deposit?

Two particular points to note are as follows:
  • A "deposit" is defined in s.213(8) as "a transfer of property intended to be held (by the landlord or otherwise) as security for–(a) the performance of any obligations of the tenant, or (b) the discharge of any liability of his, arising under or in connection with the tenancy".

  • "No person may, in connection with a shorthold tenancy, require a deposit which consists of property other than money" (s.213(7)). If any such non-monetary deposit is taken "no s.21 notice may be given in relation to the tenancy until such time as the property in question is returned to the person by whom it was given as a deposit" (s.215(3)). As to s21 see further below.

Whether six months rent in advance is a deposit

Johnson v Old
[2013] EWCA Civ 415

Summary

A six-month payment of rent in advance was not a deposit for the purposes of the Housing Act 2004.

More details

T paid six months rent in advance in addition to a deposit under the terms of her assured shorthold tenancy. The terms provided for her to pay one month’s rent in advance, but in the absence of a credit check, to pay six months in advance to the letting agent, who in turn would pay L one month in advance out of the sums held. The letting agent protected the deposit and held the six months rent, paying it to L one month at a time.

T contended that the six months advanced rental payment was a deposit for the purposes of the Housing 2004 Act as this was taken "as security for (a) the performance of any obligations of the tenant, or (b) the discharge or any liability of his, arising under or in connection with the tenancy." (s212(8) of the Housing Act 2004). The County court at first instance found for T, but the Judge allowed L’s appeal. T appealed to the Court of Appeal.

The Court of Appeal dismissed the Appeal and found for L. It held that sums held for rent in advance were not "security" within the meaning of s212(8).

Section 21 notices

The deposit must be held in an authorised scheme and the initial requirements of that scheme must be complied with within 30 days of receipt of the deposit (ss213(1) and (3)). If this deadline is not met, the landlord cannot serve a s21 notice (s215(1) (a)).

Further, ss (5) and (6) of s.213 require a landlord who has received a deposit to give the tenant certain prescribed information. If that information is not given a s.21 notice may not be served until the information is given (s.215(2)). The prescribed information that the landlord is required to give to a tenant when a deposit is taken is set out in The Housing (Tenancy Deposits) (Prescribed Information) Order 2007 (SI No.797).

A failure to adhere the second of these requirements is not fatal. A section 21 notice can be served once the information has been provided. However, a failure to adhere to the first of these requirements within the time stipulated by the Act, means that the landlord is precluded from serving a s21 notice.

However, since 6 April 2012, a landlord who has failed to protect the deposit and comply with the initial requirements within 30 days can serve a s21 notice if:
  • The deposit is returned in full (or with deductions agreed with the tenant);
  • or
  • Proceedings have been brought by the tenant in relation to the landlord’s failure to protect a deposit, and those proceedings are either determined, withdrawn or settled. (see s215 (2A)).
See also para.7 of the court form N5B (Accelerated procedure claim form) which states:
    " (a) was a money deposit received on or after 6th April 2007? If yes, at the date of the service of the Section 21 Notice: (i) The deposit was held under a Tenancy Deposit Scheme (TDS) authorised under Part 6 of the Housing Act 2004. My reference number is (ii) The initial requirements of the TDS have been complied with in relation to the deposit. (iii) The Claimant had given the defendant and anyone who paid the deposit on behalf of the defendant the prescribed information in relation to the deposit and the operation of the TDS".
Assured shorthold – statutory periodic tenancy

Superstrike Ltd v Rodrigues
[2013] EWCA Civ 669

Summary

Where a fixed term tenancy preceded the coming into force of the tenancy deposit scheme, when that tenancy became a statutory periodic tenancy the scheme was triggered. Failure to adhere to the statutory requirements in relation to a deposit meant that a s21 notice that had been served was of no effect.

Facts

A tenant (T) was granted a fixed term assured shorthold tenancy for one year less one day from 8 January 2007. T paid a deposit for that letting. On 6 April 2007 the tenancy deposit scheme came into effect under the Housing Act 2004. On 8 January 2008, T held over as a statutory periodic tenant under the Housing Act 1988. Subsequently, L served a s21 notice requiring possession and commenced proceedings. A possession order was made, but was then set aside due to non-compliance with the statutory provisions relating to tenant’s deposits. L’s appeal to the High court was allowed. T then appealed to the Court of Appeal.

Issue

The main issue for the Court of Appeal was whether the deposit paid by T needed to be dealt with in accordance with the requirements of the Housing Act 2004 in order for the s21 notice to be effective.

Decision

The Court of Appeal allowed the appeal and found for T.

The Court held that once the statutory periodic tenancy arose, there was a requirement for the deposit to be dealt with in accordance with the statutory scheme. Accordingly, as this had not been done, under the provisions of s215 Housing Act 2005, no s21 notice could be served and the possession order had been rightly set aside. Lloyd LJ:
    "The tenant should be treated as having paid the amount of the deposit to the landlord in respect of the new tenancy, by way of set-off against the landlord's obligation to account to the tenant for the deposit in respect of the previous tenancy, given that the landlord did not seek payment out of the prior deposit for the consequences of any prior breach of the tenancy agreement.

    It follows that, on my analysis, the tenant did pay, and the landlord did receive…. a deposit in respect of the new periodic tenancy in January 2008, and so the obligations under section 213 applied to the deposit so received. As is common ground, they were not performed. Section 215(1) therefore applied so that the landlord could not validly give notice under section 21 of the 1988 Act. The notice purportedly given … was thus ineffective and the grounds for possession were not made out."
Comment

It should be noted that this was a decision in relation to the statutory tenancy deposit scheme as originally enacted. This was amended on 6 April 2012 under the Localism Act 2011.


Penalties

A landlord who fails to register a deposit (or provide prescribed information) may face a claim by a tenant under s214 of the Housing Act 2004 for a statutory penalty ranging from the amount of the deposit up to three times the amount of the deposit.

Initially the sanction applied only if the landlord had not registered the deposit and provided the information by the time of the hearing (see Tiensia v Vision Enterprises Limited [2010] EWCA Civ 1224, which meant that landlords could defeat proceedings that had commenced by subsequently registering the deposit and providing the information). However, amendments brought about by the Localism Act provide a strict application of the sanction in cases where the deposit is not registered and the information is not provided within 30 days of receipt. The quid pro quo being that the landlord now has longer to comply and the courts have a discretion as to the amount of penalty.


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