Landlords have until June to comply with new rules on the protection of tenant deposits for certain assured shorthold tenancies pre-dating 6 April 2007. Check to see whether your ASTs are affected!

PROTECTING TENANT DEPOSITS – THE NEED FOR CHANGE

As from 6 April 2007, landlords of most assured shorthold tenancies (ASTs) of residential properties have been required by law to register their tenants’ deposits with an authorised independent protection scheme and provide details to the tenant.  The rules were introduced to safeguard tenancy deposits and provide a route to alternative dispute resolution for  disputes over whether deposits should be returned. Landlords who failed to comply with the rules faced difficulties in regaining possession of their properties, as well as the prospect of a fine of up to three times the value of the deposit.

However, court decisions have created confusion. The case of Superstrike v Rodrigues [1]considered the scenario where a deposit was received prior to 6 April 2007 but the tenancy “rolled over” after that date to become a statutory periodic tenancy.  The Court of Appeal gave the tenancy deposit rules an unexpected retrospective effect and refused to allow the landlord to enforce its claim for possession because it had failed to protect the deposit.

WHERE ARE WE NOW? THE DEREGULATION ACT 2015

The Deregulation Act brought new rules into effect on 26 March 2015. The legislation aims to simplify the tenancy deposit rules in connection with ASTs and to eliminate any confusion created by recent court decisions.

Changes and clarifications introduced by the Deregulation Act 2015 include the following. 

  • Where a fixed term AST was entered into prior to 6 April 2007, a deposit was received and a statutory periodic tenancy arose after that date, landlords have a 90 day grace period from 26 March 2015 to register the deposit in one of the authorised schemes and to serve the prescribed information on the tenant.  (This assumes that there are no ongoing court proceedings in the case.) 
  • Where an AST is entered into after 6 April 2007 (and the landlord fully complies with the deposit rules), there is no requirement to re-protect the deposit (and/or re-serve the prescribed information) where the tenancy rolls over into a statutory periodic tenancy or is renewed.  In such circumstances, a landlord can simply leave the deposit in the same scheme and no further steps need to be taken – provided that the tenancy details have not changed.
  • Landlords of ASTs where the deposit was taken before 6 April 2007 and a statutory periodic tenancy started before that date do not need to comply with the rules about deposit protection.  However, it may be sensible to comply as the legislation requires deposits to be protected before any section 21 notice for possession is served.

MESSAGE TO LANDLORDS

Landlords should consider whether they need to take any steps to protect their tenants’ deposits, especially in light of the 90 day grace period which expires in June 2015.

Landlords in the process of ongoing possession proceedings should consider whether the section 21 notice can be relied upon and whether the changes under the new legislation can assist in any way.

To read more about the Tenancy Deposit Scheme please click here