Tenant Deposit Scheme – the saga continues

The Tenant Deposit Scheme is to be re-visited by the Government within changes proposed by the Localism Bill.   The Tenant Deposit Scheme has a very unhappy history.   Designed with a simple ambition of protecting tenants’ monies with an arbitration service to resolve disputes, all parties have found the Housing Act 2004 legislation unsatisfactory.

Landlords face unwanted bureaucratic complexities with the potential of having to pay substantial penalties for non-compliance of three times the value of the deposit and being unable to terminate an assured shorthold tenancy by giving two months’ notice, even if a breach of the Deposit Scheme was minor or unintentional.

Tenants have found significant delays in deposit monies being returned so they have to fund the deposit on their next property by other means.   Where disputes have arisen the Arbitration Service has been slow and inconsistent in its decisions.

Letting Agents, although able to obtain an additional income for arranging  compliance with the Deposit Scheme for client landlords, have found they have had to re-serve the “prescribed information”, when amendments have been issued without any notification and have had to advise landlords they have to meet the additional requirements issued by the Deposit Scheme providers who will not, for example, consider disputes on any alleged deterioration of the condition of the property without the landlord having obtained a professional inventory and schedule of condition at the start and end of the tenancy.

Professional advisors have found that, due to the lack of detail within the original legislation, it has been extremely difficult to advise both landlords and tenants how and when the Tenant Deposit Scheme requirements apply and what the consequences of non-compliance will be.

The Courts have been faced with deciding whether to interpret the requirements of the Tenant Deposit Scheme strictly thereby meaning that if a landlord did not comply with the scheme within 14 days of the deposit monies being received, ordering the landlord to pay three times the deposit to the tenant and preventing the landlord from ending the tenancy by his own initiative through a two months’ notice, regardless of how minor or unintentional any breach may be or taking a more relaxed approach but thereby rendering the legislation ineffective.  In the event the Courts have taken a less draconian approach.  The Court of Appeal has decided that a landlord may comply with the requirements of the Deposit Scheme anytime before the Court hearing of the tenant’s application that the landlord has been in breach and also that the landlord does not have to comply with the Deposit Scheme requirements once the tenancy has come to end as it only applies to “current” tenancies and that a Court action for non-compliance will only be valid if all of the tenants take action and not just one of them.

It is of little surprise therefore that the Government have re-visited this legislation through the Localism Bill.

The proposals that have been put forward to render the scheme workable again are:

1.         The initial requirements of the Deposit Scheme will not be mandatory.   If a landlord does not comply with the obligation to protect the deposit and supply the Prescribed Information within 30 days of the receipt of the deposit the tenant will be able to apply to the Court to enforce compliance.

2.         If a tenant does apply to the County Court once the tenancy has ended the landlord will not be able retrospectively to pay the deposit into a scheme but must  repay the deposit or part of it to the tenant

3.         Instead of the Court having to award 3 x the deposit to a tenant, the Judge will have a discretion to award not less than the amount of the deposit and not more than 3 x the deposit as a penalty for non-compliance

4.         The principal motivation for a landlord to comply with the Tenant Deposit Scheme is that any s21 two months’ notice terminating the tenancy will not be valid unless compliance has taken place.  Section 125 of the Housing Act 2004 will be amended to confirm that a s21 Notice may not be given where a deposit has not been protected within the 30 day period.  But if the deposit has been returned to the tenant in full or with such deductions as have been agreed or an application has been determined by the County Court  or the proceedings withdrawn or settled then a Section 21 Notice maybe effectively served.

At the current time these provisions are expected to come into force in April 2012 but as always, the timing of such an introduction will depend on the amount of Parliamentary time available.

It appears the Tenant Deposit Scheme is here to stay.  It remains to be seen whether the proposed amendments are enough for those who are directly involved to have faith in its ability to achieve its objective.

Jeremy Teall

Solicitor