Key points

  • As well as duly protecting a deposit received in relation to an assured shorthold tenancy in one of the statutory schemes, a landlord must ensure that it gives certain "prescribed information" to the tenant
  • The supply of incomplete information could mean that the landlord is liable to pay a fine to the tenant
  • It does not matter if the landlord has already repaid the deposit to the tenant in full

Background

The tenancy deposit scheme rules were introduced in April 2007. Broadly, they require a landlord who "receives" a deposit in connection with an Assured Shorthold Tenancy (AST) to protect that deposit with one of three statutory schemes within 14 days of receipt, and to provide certain "prescribed information" to the tenant within 14 days.

Importantly, the rules affect those buying and selling properties subject to ASTs such as a parade of shops with flats above, as well as those granting new ASTs. As a result, the legislation can affect commercial landlords as well as landlords whose portfolio is exclusively residential.

Sanctions

A landlord who does not comply with the legislation can in theory be liable to pay a fine of three times the amount of the deposit to the tenant, and will also be prevented from recovering possession of the property in the ordinary way. However, the effect of the way the rules have been interpreted by the courts has been to weaken the effect of these sanctions for non-compliance.

For example, in Vision Enterprises Ltd v Tiensa, the court ruled that, if a tenant takes action against a landlord for non-compliance with the legislation, then as long as the deposit is properly protected in one of the authorised schemes by the time of the court hearing, no sanctions will be imposed.

Prescribed information

The legislation contains a trap for unwary landlords in relation to the information which they must provide to their tenants about the way their deposits have been protected. The rules set out a detailed list of information which must be provided. However, unlike other property legislation, there is no prescribed form which must be used. This means that landlords risk omitting something in error, and therefore not complying with the requirements.

In Suurpere v Nice, the landlord had failed to protect the deposit within 14 days as it was not aware of the relevant legislation. It did so once the tenant drew its attention to the requirements. The scheme which was holding the deposit then sent the tenant a letter confirming that the deposit had been protected.

The letter contained some basic information about the deposit including the amount of the deposit, the name of the scheme which was holding the deposit (and a link to its website) and a reference number. However, it did not include all the information prescribed by the rules. In particular, it did not make any mention of the circumstances in which the landlord could retain the deposit, nor (since it was given by the deposit protection scheme) did it contain a certificate signed by the landlord confirming that the information in it was accurate.

The court ruled that Parliament had regarded the obligation to provide the prescribed information as equally important as the obligation to protect the deposit in the first place. This was demonstrated by the level of detail required to be provided, and the requirement for the landlord to certify the information as accurate.

The court ruled that the letter which the tenant had received was not sufficient to meet the landlord's obligations under the legislation. First, this letter had been received from the deposit protection scheme, whereas the information was required to be provided by the landlord personally. Secondly, the letter did not include all the information which was prescribed (it was not enough simply to direct the tenant to the deposit scheme's website). Finally, the information contained in the letter was not, by its very nature, certified by the landlord as accurate.

In Gladhurst Properties Ltd v Hashemi, the Court of Appeal held that no penalty could be imposed for non-compliance with the legislation after the lease had come to an end. In Suurpere however, the lease had not been properly brought to an end (although the tenant had vacated the premises). The court was therefore able to impose a fine on the landlord of three times the amount of the deposit.

Things to consider

It is clear that a landlord who provides the prescribed information late, but in full, will not be liable to a penalty (see Harvey v Bamforth).

One interesting factor about this case is that, by the time of the court hearing, the landlord had returned the deposit, in its entirety, to the tenant. However, this did not prevent the imposition of a fine. The court thought that the potentially harsh effect of this conclusion was alleviated by the opportunity a landlord has to put its house in order before the hearing.

Consistently with the more landlord-friendly approach adopted in some of the other cases however, the court stated that the purpose of the legislation was not to punish landlords, but to achieve the proper protection of tenants' deposits. The court noted that the landlords in this case were inexperienced, and were genuinely unaware of the legislation.

The absence of a statutorily prescribed form means that risk remains even for landlords who are aware of their responsibilities. Some of the deposit schemes do have their own forms which can be used, but these should be checked and completed carefully, as compliance remains the landlord's responsibility.

Finally, it is worth mentioning that the Localism Bill, which is currently going through Parliament, contains some proposed amendments to the tenancy deposit scheme legislation. If enacted, these will extend the period for protection of a deposit from 14 to 30 days, and deal with some of the technical difficulties with the current drafting. The amount of the penalty may also be capable of being reduced by the court, using its discretion. More information about the changes will be provided nearer the time when they are due to come into force.