If a residential tenancy is an Assured Shorthold Tenancy (“AST”), there are rules in place which mean that any deposit paid by the tenant must be protected by the landlord via the Tenancy Deposit Scheme (“TDS”).

The Legislation

Under the TDS, the landlord must either place the monies in an authorised tenancy deposit scheme or the landlord can retain the money, but must then take out insurance to protect the deposit. The tenant must then be informed of where and how the deposit is protected within 14 days of the landlord receiving the monies. A landlord who fails to do so must repay the deposit, can be fined up to three times the amount of the deposit and will lose the right to serve a notice to end the tenancy (section 213-215 Housing Act 2004).

Recent Legislation

However, a series of recent cases have cast doubt on the effectiveness of these provisions and how much protection is actually given to tenants.

In the cases Tiensia v Vision Enterprises Limited and Potts v Densley, ASTs were granted to the respective tenants. However, the deposits were not placed into an authorised tenancy deposit scheme. The tenants complained that they had not received any notification of how the deposits had been protected, and took the matter to court. Before the respective trials began, the landlords paid the deposit into an authorised tenancy deposit scheme. Although this was done after the 14 days required by law, the courts determined that because the landlords had remedied the situation, there was no liability. It was only where the breach had not been remedied by the date of the trial that a landlord would be penalised.

Subsequently, in Hashemi v Gladehurst a deposit was again paid, but was not protected in an authorised scheme, and the lease then ended. The tenant brought proceedings claiming the repayment of three times the deposit, but the Court of Appeal held that where the AST had finished, the landlord had no further liability under the statutory provisions. The Court determined that the tenant must bring the claim during the term of the AST to have a chance of success.

Conclusions

The above decisions cast serious doubt over the value of the statutory provisions. A tenant cannot protest once the AST is over, but even if they bring proceedings within the term of the AST, if the landlord remedies their breach of the rules and places the deposit into a scheme, they will not be liable.

The purpose of the legislation was to protect a tenant’s position from the outset, such that the deposit is ‘ring-fenced’ and placed in a secure bank account. However, the recent rulings show that a landlord simply has to wait until he is threatened with legal proceedings or until the end of the AST. The protection afforded to tenants therefore seems to be negligible.

If you are a tenant or a landlord under and AST and want to know more about ensuring that the deposit is protected correctly, it is recommended that you seek legal advice.