The Localism Bill is currently going through Parliament. The Bill is designed to devolve greater powers to councils and neighbourhoods. It will also amend the rules on assured shorthold tenancy deposits.

The Current Law

The current statutory framework is contained in the Housing Act 2004: 

  • It only applies to residential assured shorthold tenancies. 
  • The landlord must place the deposit in an authorised scheme within 14 days and also provide the tenant with prescribed information about the scheme.
  • If the landlord fails to do so, in any court proceedings the court must order the landlord to pay a sum equal to the deposit either to the tenant or to an authorised scheme, as the court shall decide, and a penalty of three times the deposit.

The Act remains in force, but the legal position has become confused by recent judicial decisions.

Recent Decisions

In Tiensia v Vision Enterprises Ltd (t/a Universal Estates) and Honeysuckle Properties v Fletcher and others, the landlord failed to place the deposit in an authorised scheme and provide the prescribed information within 14 days of receipt of the deposit. Nonetheless, the Court of Appeal held that, because the landlord had done so by the court hearing date, the landlord had complied with the requirements of the 2004 Act and no penalty was payable.

In Potts v Densley and another, the High Court held that a landlord was not liable to pay the tenant a penalty of three times the deposit, even though the deposit had not been placed in a tenancy deposit scheme until after the tenancy had ended. This was followed by Gladehurst Propertes Ltd v Hashemi, in which the Court of Appeal held that an application cannot be made for a landlord to pay the penalty once the tenancy has expired.

In Suurpere v Nice, the deposit was transferred to the deposit scheme late but before the tenant’s claim was heard, and by the date of the hearing the tenant had left the property and the deposit had been returned to the tenant. However, the landlord was ordered to pay the tenant the penalty, because he never gave the tenant the prescribed information about the deposit, and this obligation continues even after the deposit is repaid. The case could be distinguished from Hashemi because the court held there was no evidence that the tenancy had ended.

The effect of the court rulings is that, under the current rules, landlords will hardly ever have to pay the penalty of three times the deposit for failing to comply with the rules, because the penalty is not payable if (a) the landlord complies at any time before the hearing or (b) the tenancy has ended.

Proposals in the Localism Bill

The Bill proposes the following changes: 

  • the period for the landlord to comply with the initial requirements of the scheme and to give the tenant the prescribed information will be increased from 14 to 30 days;
  • the landlord will be liable for the penalty if the requirements are not complied with within the 30 day period and will no longer escape liability by complying late but before the hearing;
  • the tenant will be able to make its court application even if the tenancy has ended; and 
  • the penalty for failing to comply with the initial requirements of the scheme or to give the tenant the prescribed information within 30 days will be between one and three times the deposit (rather than fixed at three times the deposit as now).