If you are a landlord and take tenancy deposits there has, since 7 April 2012, been a very strict time limit.
To comply with the regulations you must protect the deposit and serve the required information on the tenant within 30 days” from the time when it is received” (Housing Act 2004 s213 as amended).
If you don’t, it’s a bit of a fatal mistake, as you will be forever non compliant with the regulations so far as that deposit is concerned.
Now you could possibly return that deposit to the tenants and take a new one. However I suspect many landlords won’t want to do that.
Plus it won’t actually take your liability away for the penalty for non compliance (which is between one or three times the deposit sum, the precise sum to be in the discretion of the Judge).
So what can you do to reduce the risk?
1. Protect the deposit
You should always do this. The whole point of the legislation is to get all deposits protected.
If the tenant makes a claim against you, the Judge will probably make an award at the lesser end of the scale if he can see that you protected as soon as you became aware of the problem.
2. Serve the prescribed information
You will not be fully compliant with the regulations until you have done this. Now some landlords may hesitate to do this, fearing to alert the tenants to the fact that they (ie the landlord) are out of time and that they (ie the tenants) have a fail safe claim.
However again, if the tenant does bring a claim, the Judge is less likely to make a high award if you have complied fully with the requirements.
Note by the way that you need to be able to prove that the information has been served. The best way to do this is to get the tenant to counter sign a copy form.
3. Serve any leaflets provided by your tenancy deposit scheme
Part of the prescribed information includes information about the scheme you are using.
The scheme administrators should normally have special leaflets you can give to your tenant which will provide this part of the information.
4. Don’t antagonise the tenant by making deductions
Generally all tenants want is to have their deposit refunded to them promptly at the end of the tenancy. It is only when this is not forthcoming that they start investigating their rights.
Generally it is at this stage that they will find out that their landlord is non compliant, and start thinking about making a claim for the penalty.
If you return their deposit, and don’t do anything to annoy them, hopefully they will never find out.
5. Get insurance or keep a reserve fund
Now I don’t actually know if obtaining insurance is possible, and it would be helpful if any insurance companies who provide such a service could confirm this by leaving a comment.
However they say that anything can be insured if the premium is sufficient, so it must be possible to obtain insurance against the possibility that a claim will be made against you.
Full disclosure would be required to the insurance company, and I imagine that they would want you to comply with the regulations as a condition of setting up the policy.
Alternatively, if you can’t get insurance, I would advise keeping a reserve fund just in case. You will need to have it available for the next six years.
For a step by step guide which looks at what you need to do, for example if you need to serve a section 21 notice, click here.
If a deposit has not been correctly protected then IMHO it is better to return it in full immediately to the tenant (or if they are in arrears, get them to agree in writing to use the deposit as rent).
Ben suggests you don’t deduct from it anyway so it has no use as security, and whilst you hold it, you are barred from issuing a s21.
I feel that a judge would regard these actions as equally ‘decent’ as immediately protecting the deposit if a penalty were to be claimed.
The above only applies to s213(3). If it is a 213(6) then provide the information and cross your fingers!
True – if you think you are going to need to serve a section 21, then just return the money.
Perhaps an even more problematical er…….problem for landlords who havent protected is their inability to serve a s21 until they have either returned the deposit in full, returned with agreed deductions or the tenant has completed a penalty action against the landlord, whether they win or not.
It is important to understand that the last option is one that is promoted by many housing advice teams and homelessness prevention officers.
Look at it from their perspective. Their job title means they have to do whatever they can to prevent homelessness. The vast majority of tenants approach a homelessness office brandishing a section 21 and demanding to be rehoused. If the officer can invalidate the notice they have done their job, also, if the 3 times penalty comes up trumps the applicant has funds with which they can seek alternative accommodation. Job done, no public funds used.
The savvy homelessness prevention officer (certainly the ones I have trained) look at the S21 in front of them and ask more questions about protection.
Thats the reality of the job. Landlords who dont protect the deposit are playing straight into the HPU’s hands
Re point 5 this is just not possible Tessa, just as a tenant cannot go beyond accidental damage to LL goods in a contents policy and insure themselves or persons known to them against causing malicious damage
So it is not possible to insure against possibly breaking the Law, or in this case having already done so. The policy would be a non starter because the known risk was too great and because the potential award was known, even as a minimum, the premium would be extortionate (probably x1 the deposit minimum)
@Industry Observer I was thinking more of some sort of insurance you could take out once you knew you had made the error, against the possibility that the tenants will sue.
Bearing in mind that the tenant has 6 years – during which time the landlord may want to sell off his properties (for example), or retire from property investing.
Can any insurance companies reading please comment?
@Ben
This:
“..if the 3 times penalty comes up trumps the applicant has funds with which they can seek alternative accommodation. Job done, no public funds used.”
And if it doesn’t, they may be on the receiving end of the costs related to a multitrack court case (?)
How would that be taken into account in the thinking, or would it be a Legal Aid case?
Rgds
I have seen it suggested that the landlord could return the deposit to the tenant during the tenancy period. Also, could the landlord renew the tenancy and protect the deposit at that time?
@Sarah Bell – yes the landlord can return the deposit. In fact if he wants to use s21 and has failed to protect in time, he will have to.
However returning the deposit will not end his liability under the regulations for the penalty. It will make it less likely though that the tenant will take this action.
Again the landlord can protect the deposit at renewal, but again this will not rectify the initial problem or remove his liability for this. Or so I understand anyway.
This all seems fine in principle, but it would appear that Solicitors are wary of getting their fingers burnt when acting for tenants in cases where there has been a failure to meet the amendments in the Localism Act? In London where the deposit plus penalty is likely to exceed the £5,000 small claims cap, there is a reluctance to accept that a County Court will award costs to the claimant, which could be substantial in relation to the award, and currently no case law suggesting that this legislation will stand up to the adverse interpretation of the judge. Without such certainty the legislation would appear to be quite toothless and tenants without substantial financial means would seem to need alternative advice.