To be in compliance with the Section 213 Housing Act 2004, any money taken from a tenant as a security deposit must be protected in a Government approved scheme within 30 days of receiving it. Just to clarify, it is NOT a legal requirement to take a deposit, so this legislation only applies to those landlords that have taken a deposit from the tenant.
After the tenant’s deposit is protected, the tenant must be given the tenant deposit “Prescribed Information”. The prescribed information must also be given to the tenant within 30 days of taking the deposit.
Note you must keep evidence of you giving (serving) the tenant the deposit certificate and the deposit prescribed information.
All tenant deposits taken even those taken before 2007 when the original deposit legislation was not introduced MUST be protected. Landlords had until the 23 June 2015 to protect deposits.
I didn’t protect the tenant’s deposit in time?
If you are one of the many landlords or letting agents who have not protected your tenant’s deposit, please read on.
Since the Housing Act 2004 was introduced, there have been further changes to Deposit Protection Legislation. Unfortunately, ignorance of the tenant deposit legislation is no defence in law.
Some of the most common scenarios
My tenant is threatening legal action for the deposit.
If your tenant has discovered you did not comply with the deposit legislation, and he/she can potentially make a small claim against you. The tenant can seek compensation for your failure to comply with the law. Either you pay compensation or face legal action.
I need to evict my tenant, but I can’t serve a Section
If the Deposit Protection Legislation has not been followed, meaning you failed to protect the deposit. You will be barred from serving a section 21 notice. Any section 21 notice where the deposit legislation was not protected then you will not be able to rely on a section 21 notice.
You may have an alternative by using the section 8 route (if you have the grounds). Note if you are going to use the section 8 route and your grounds are rent arrears you need to deduct 3 times the value of the deposit out of the total rent arrears you are claiming. This is important as the tenant may counterclaim for non-compliance of the deposit legislation.
If you have rent arrears of say 2 months, you go to court, the tenant makes a counterclaim and succeeds. You may not have sufficient rent arrears left after the set-off and your claim is likely to fail.
Claim for possession failed due to deposit issue
Most tenants will take legal advice when they are served with a Section 21. One of the first questions they maybe are asked is “Did your landlord protect your deposit?”
Followed by “Did your landlord send you the legally required information about your deposit protection within 30 days?” If your tenant cannot answer YES to both questions, they will be told to contest the Section 21 in court. If you failed to comply with the deposit legislation than your possession claim is highly likely to be dismissed
I did not know about the tenant deposit legislation what can I do?
This is a typical case where the landlord has just one property. The landlord may have heard through a friend that the tenant can gain compensation if the deposit was not protected.
To forget that not protecting the deposit is not a defence.
How to Defend a tenants deposit claim
Now, let’s get to the crux of the matter.
As it stands, these are your options:
- Pay the deposit back to the tenant and hope that he doesn’t find out that he can get compensation, although it might be difficult to explain *why* you’re giving it back.
- If you’re trying to get rid of a rogue tenant, use a Section 8, with grounds for eviction.
- Do nothing, but sit tight and pray that your tenants don’t realise protecting the deposit and serving the Prescribed Information is a legal requirement and/or they don’t care enough to seek compensation because you’ve been an amazing landlord.
If your tenant has not mentioned anything
There’s a chance your tenant isn’t aware of the tenancy deposit legislation or the ramifications of failing to comply. It’s also not unusual for tenants to be aware but waive their right to sue because their landlord has been reasonable throughout the tenancy.
The point here is that you don’t want to give your tenant a reason to consider the legislation or exercise their right to claim compensation.
Court of Appeal tenants deposit claim
The case of Ayannuga v Swindells  EWCA Civ 1789 should be of interest to landlords. In this case, the tenant was awarded compensation equivalent to the maximum amount of three times the deposit.
Landlords solicitors Richard Moss persuaded the Learned Judge to award compensation to the tenant limited to the minimal amount of one-times the deposit paid.
The tenant in this matter was very unhappy with the Judge’s award, and so he appealed. At the appeal hearing in the High Court in London on 23 October 2014, landlords solicitors successfully persuaded the Appeal Judge to reject the tenant’s appeal and to confirm the tenant’s entitlement to compensation was limited to just one-times the amount of the deposit.
The landlord did not have to pay any money to the tenant as rent arrears were set off against the deposit claim. The tenant also paid the landlords cost of defending the appeal.
Source: British Landlords Association
Author: Sarah Featherstone
20th of October 2020