On 6 April 2013 regulations are due to be implemented that will include removing the compulsory obligation to register a rent deposit deed that contains a charge at Companies House.  Currently a fixed charge needs to be registered at Companies House where the tenant is a company, limited liability partnership or a foreign company.  Failure to register will mean that the charge is void and unenforceable against a liquidator or an administrator of the tenant.

The change in regime would follow from an implementation of the Companies Act 2006 (Amendment of Part 25) Regulations 2012 and the Limited Liability Partnerships (Application of Companies Act 2006) (Amendment) Regulations 2012.  If implemented it would mean that from 6 April 2013 most charges over rent deposits will no longer registrable security and therefore cannot be registered at Companies House.

So how have we got here?

In 2010 the Department issued a consultation that made proposals to revise the current scheme for the registration of charges under the Companies Act 2006 based on the 2001 recommendations of the Company Law Review and the 2005 Law Commission report.  The consultation proposed a number of options to achieve further clarity on the registration of security interests but following the consultation the government opted for all charges to be registrable except specific exceptions.  This followed the recommendations of the Company Law Review and the Law Commission in their reports.  Originally rent deposits were not exceptions but this arose as the consultation process developed.

The result is that the obligation to register a charge will not apply to a charge if it is "cash taken or held by a landlord as security for the due performance and observance of a tenant's obligations under a lease of land" from 6 April 2013 should the regulations be implemented.

So what are the implications?

Well the charge will still be effective.  It will still provide security to the chargee as a secured creditor.  However there will no longer be a public record of the charge.  It will not be immediately clear to third parties whether a charged rent deposit exists over a particular company's assets.

Will this make a difference to landlords?

Most rent deposits are usually controlled by a landlord.  Tenants may ask for the account to be in the name of the tenant in order to put a bank or insolvency official on notice that the funds do not belong to the landlord, however the landlord will want to control the rent deposit under the terms of the rent deposit deed.  Going forward landlords will certainly insist on having control of the account and may want to insist on having both control of the account and the account in their name.  For the same reason a tenant may be concerned that an insolvency official of the landlord does not know about the rent deposit at all, a landlord may have similar concerns in relation to a tenant's insolvency official.  In any event having an account that is controlled by the landlord will provide protection against any party making a claim over the rent deposit whether the charge is registered at Companies House or not.

Will this make a difference to tenants?

As the landlord holds the rent deposit in most cases it will not.  However it will not be as easy for a tenant's insolvency official to immediately spot a charged rent deposit amongst the tenant's assets and specific enquiries will need to be made on this point.

What about from a third party perspective?

There is an argument that it would be useful for third parties to be aware of existing charged rent deposits especially when dealing with small to medium sized businesses.  Rent deposits tie up capital that cannot then be used for other purposes and this could be important in assessing a company's financial position.  However, the amounts involved are usually not significant when compared to the overall size of a business and the clarity provided by excluding the compulsory registration of rent deposits should be welcomed.