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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.

The Problem

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.

We have created an infographic to help clarify this process. Click here to view it.

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.

The solution

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.

Prescribed Information

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.

Operative date

  • Now

Recommendation

  • 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.

Laura Albon – Partner. Laura has been working in litigation for nearly 10 years. She works almost exclusively with property investors and agents across the whole country. She trained with the partners of Helix Law and has extensive experience in possession, service charge recovery, breach of covenant and commercial contract claims. She is able to pursue matters through the court and through The First Tier Tribunal (formerly the Leasehold Valuation Tribunal or LVT).

 

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice. 

Contact Helix Law on 01273 761 990 or email: [email protected]