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25th January 2012

Tenancy Deposit Schemes - Localism Act 2011 adds bite to legislation

The Tenancy Deposit Scheme legislation was first brought into force in 2007, with the aim of ensuring that deposits taken in connection with the grant of Assured Shorthold Tenancies were properly protected in authorised schemes, to prevent landlords from refusing to return some or all of the deposit to the tenant without justification.

However, so far the legislation has not had the effect that many had hoped for. A number of court decisions resulted in landlords escaping penalty under the legislation, even where they were in breach of the “spirit” of its aims. For example, as the law currently stands, a landlord can fail to protect a deposit within the required time period of 14 days from the date on which it is received. Even if the tenant makes an application to the county court, provided that the landlord protects the deposit before the court hearing, the landlord will not be punished. Similarly, a tenant cannot make an application to court after the tenancy has ended.

Provisions have been included in the Localism Act 2011 to try and address these problems. The provisions in the Act relating to tenancy deposits are not yet in force, but are currently expected to come into force in April 2012. The most significant changes are :-

The time period for protecting a deposit and providing prescribed information to the tenant is increased from 14 to 30 days after receipt of the deposit. The court must order the landlord to return the deposit and pay a penalty for failing to comply with the 30 day time limit.

The penalty will no longer automatically be equal to three times the amount of the deposit. The court is given discretion to order payment of a sum between one and three times the amount of the deposit.

A former tenant may apply to the court to claim the return of the deposit and a penalty payment from the landlord even if the tenancy to which the claim relates has expired.

The landlord may serve a section 21 notice to seek possession of the property even if the deposit has not been protected, where the deposit has been returned to the Tenant (either in full or less any agreed deductions) or if the tenant has brought a claim for a penalty payment and that has been determined, withdrawn or settled.

When the amended provisions come into force, there will be welcome clarity as to what the Landlord is required to do with the deposit and when. However, it also means that in order to avoid the risk of a claim being brought by the tenant, landlords must protect deposits and provide prescribed information within 30 days of receiving the deposit monies. Experienced landlords or those represented by agents who have already been complying with the requirements of the legislation should therefore continue as they have been. However inexperienced landlords or those who are not professionally represented to may fail to comply with the strict 30 day time limit and it will be interesting to see how many tenants apply to the court in such circumstances. The court will have discretion as to the amount of penalty which it imposes, but at the very least if it finds there has been a breach of the requirements then it must order a penalty equal to the value of the deposit.

For more information, please contact Gareth Williams on 01604 463344 or by e-mail garethwilliams@hewitsons.com

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