This article first appeared in the May 2015 edition of 24housing.

Mary Walsh explains recent changes to tenancy deposits and what they mean for RPs with market rent tenants on assured shorthold tenancies.  

Since 6 April 2007 landlords of properties let on assured shorthold tenancies have been required to protect tenants' deposits in an approved tenancy deposit scheme and to provide the prescribed information to the tenant within 30 days of taking the deposit. This has caused landlords to have to grapple to understand and implement what, at times, has seemed like an ever increasing set of hurdles to stumble over in managing assured shorthold tenancies.  

Long gone are the days when registered providers (RPs) simply house tenants as part of their charitable activities.  Increasingly the sector is seeing RPs let (and manage) properties at a market rent, on assured shorthold tenancies. This increase in revenue helps to sustain their main charitable arm with the potential of building more affordable housing.  

The impact of non-compliance with s.212 -215 Housing Act 2004 (Tenancy Deposit Schemes) is severe. Landlords are unable to serve a valid s.21 notice requiring mandatory possession of the property and they may additionally be liable to pay a financial penalty between one and three times the deposit amount if they have failed to properly protect a tenant’s deposit and/or the prescribed information is not sent within the correct timeframe.

Superstrike – unnecessary intervention

Of particular concern was the surprising Court of Appeal decision in Superstrike Ltd v Rodrigues [2013]. This case decided that where a fixed term contractual tenancy was entered into before 6 April 2007 but then became a statutory periodic tenancy after that date, a new tenancy was in fact created and therefore fell under the tenancy deposit legislation.  Although not directly dealt with in this case, it was hinted that a landlord should ensure that when a periodic tenancy arose after 6 April 2007, a tenant whose deposit had already been properly protected should be re-served with the deposit information and the prescribed information, meaning a valid s.21 notice can be served.

Deregulation Act 2015 – Impact on deposits taken after 6 April 2007

The Deregulation Act 2015 which became law on 26 March 2015 has thankfully rectified this uncertain position. If the landlord took a deposit on or after 6 April 2007 which they protected and served the prescribed information during the original term of the tenancy, then it will not be necessary for the landlord to re-protect the deposit (or re-serve the prescribed information) when the fixed term ends and the tenancy becomes a statutory periodic tenancy.

Other changes

There are also changes to the rules relating to deposits taken before 6 April 2007:

  1. If the tenancy became a statutory periodic tenancy before 6 April 2007, there is no financial penalty for failure to protect the deposit. However in order for landlords to serve a valid s. 21 notice a landlord must either protect the deposit and serve the prescribed information before doing so or return the deposit in full to the tenant.
  2. Where the tenancy became a statutory periodic tenancy after 6 April 2007 and the landlord has never protected the deposit, the deposit must now be protected and the prescribed information served by 23 June 2015. Failure to do so will leave landlords exposed to a claim for a financial penalty and unable to serve a valid s.21 notice without having first returned the deposit to the tenant in full.

It is also now acceptable for agents’ details to be given in place of landlords’ details where the agent protected or is dealing with the deposit.

Conclusion

It is a relief that landlords do not need to worry about re-protecting deposits once the tenancy becomes a statutory periodic tenancy. However, it is important that landlords act quickly to take advantage of the window of opportunity given to them and review their portfolios and properly protect tenancy deposits.  

Interestingly, as the amendments are retrospective there has been commentary regarding the extent to which the demise of Superstrike will assist landlords by allowing them to rely on s.21 notices which were deemed invalid or by appealing the dismissal of possession actions because ofSuperstrike. Whilst this may assist a minority of landlords, it is unlikely to assist those who took the approach of returning deposits and issuing new s.21 notices.