I Didn’t Protect My Tenant’s Deposit In Time, What Should I Do Now?
Where a deposit has not been protected within the prescribed time, landlords must return the deposit to the tenant or face being prevented from recovering possession of the property.
At present landlords must protect a deposit with an authorised scheme within 30 days of receiving it.
If a deposit was received between 6th April 2007 and 5th April 2012 landlords were required to protect the deposit within 14 days of receipt. From 6 April 2012, the period was extended to 30 days as it is currently. It is also now the case that if the landlord received a deposit before 6 April 2007 the landlord must have protected the deposit by 24 June 2015.
The consequences of failing to do so are severe, and the court requires strict compliance. It doesn’t matter if the landlord is even a day late, the same sanctions apply. That said, the sanctions can vary dependent on the severity of the landlord’s behaviour, as explained below.
If the deposit wasn’t protected in time, a landlord will not be able to recover possession by serving a section 21 notice until they have complied with the rules. The unprotected deposit will make the notice invalid and proceedings based on it will fail.
The landlord may still be able to recover possession through section 8 notice proceedings if the relevant grounds are made out. However, there is a risk that the tenant will bring their own claim against the landlord for failure to protect the deposit in time or at all. The court may order that the landlord repay the deposit and that the landlord pay the tenant a sum of up to three times the value of the deposit. Modest breaches tend to attract a penalty of one times the deposit and more flagrant breaches up to three times the deposit.
If the section 8 notice is relying on the tenant’s rent arrears then the deposit claim could offset the rent arrears and result in the landlord being unable to rely upon the mandatory ground 8. The court might make an order on discretionary grounds, but it might not – leaving the landlord with legal costs, unpaid rent and no possession. Clearly if the tenant’s deposit claim completely extinguishes the rent arrears it is very likely that the possession claim will fail.
So what is a landlord to do? The deposit must be repaid. If the deposit is repaid, then the first sanction does not apply; the landlord will be able to serve a valid section 21 notice (provided the other requirements are made out, see our blog on serving a valid section 21 notice).
The second sanction may also become less severe – if the landlord returns the deposit to the tenant it is more likely that the court will order a lower penalty figure be paid to the tenant.
How to repay
It is important to note that the landlord must be able to prove that the deposit has actually been returned to the tenant. This is not difficult if the landlord has not protected the deposit and has the tenant’s bank details; the money can be simply transferred into the tenant’s account and the bank statement will serve as evidence of payment.
If the deposit is protected within a scheme late, the landlord must make a request to the specific deposit protection scheme for the deposit be returned. The scheme’s procedure must be used: the landlord cannot use their own funds to repay an amount equivalent to the deposit. The difficulty in this scenario is that the tenant can evade the return of the deposit via the scheme and until the scheme confirms that the deposit has been repaid to the tenant, the landlord will not be able to serve a valid section 21 notice. This may mean that it is impossible to recover possession using the section 21 procedure. The landlord will either have to take the risk of relying on section 8 proceedings or wait for the tenant to leave voluntarily.
The necessary information prescribed by the deposit scheme the landlord is using must also be served on the tenant within the timescales set out above.
Failure to serve the prescribed information will also result in the landlord being unable to serve a section 21 Notice. However, unlike with protecting the deposit, the landlord is able to simply resolve this problem by serving the prescribed information before the section 21 notice is served.
The monetary penalties for failing to protect a deposit properly are also applicable to failure to serve the prescribed information. However, it is likely that any penalty will be at the lower end of the scale as this failure is a more modest breach.
- Landlords should be protecting deposits and serving prescribed information within 30 days.
- If the deposit has not been protected in time, the landlord should return the deposit to the tenant. If the deposit is not returned, the landlord will not be able to obtain possession using the section 21 procedure.
- If the prescribed information has not been served in time, or there is no evidence that it has been served in time, the landlord should serve the prescribed information before serving a section 21 notice.
A tenancy deposit is a sum paid by a tenant and held by a landlord for the duration of a tenancy. The money acts as a security deposit in case a tenant does not meet their obligations as set out in their tenancy agreement, i.e. to cover the cost of any damages to the property during the tenancy.
Once the landlord receives a tenant’s deposit, they must pay the money into a tenancy deposit scheme within 30 days, which holds the money safely until the end of the tenancy and the full or partial sum is paid back to the tenant.
All tenancy deposits must be protected by an authorised tenancy deposit scheme. This is the law as of the 6th April 2007.
The TDS is a UK government-authorised deposit protection scheme that holds tenancy deposits on behalf of landlords. At the end of a tenancy, the entire deposit is either paid back to the tenant, or the money is held until any disputes are settled, such as the landlord claiming part or all of the deposit to cover the cost of damages caused to the property during the tenancy.
This depends on the type of scheme that the deposit is held by. There are two types: custodial or insured.
A custodial tenancy deposit scheme is free to use because the interest funds the scheme. The scheme provider keeps any interest earned by the deposit.
An insured tenancy deposit scheme is where a landlord (or agent acting on behalf of a landlord) pays a small fixed sum to protect a deposit in a suitable account. Any interest accrued is usually kept by the landlord. To avoid any confusion or conflict around who is entitled to the interest, the tenancy agreement should state who keeps it once the tenancy is up.