CHAPTER ONE – THE LEGISLATION
The Housing Act 2004 (‘HA 2004’) introduced new legislation in respect of how landlords must deal with tenancy deposits that are received when granting an assured shorthold tenancy (‘AST’). The legislation has been subsequently amended by the Localism Act 2011 (‘LA 2011’) and the Deregulation Act 2015 (‘DA 2015’) to provide further clarification on the landlord’s requirements when dealing with deposits and also to introduce further requirements and restrictions. It is crucial for landlords to be aware of the legislation to ensure compliance. This chapter aims to provide a summary of the current legislative framework.
The rules relating to tenancy deposits in respect of ASTs were introduced by the HA 2004 and came into force on 6 April 2007. Since this date when a deposit is received from the tenant on the commencement of an AST a landlord must:
join a Tenancy Deposit Scheme (‘TDS’) ;
pay the deposit into the TDS;
Comply with the initial requirements of the TDS ;
Serve prescribed information on the tenant.
The requirements set out above were to be complied with within 14 days of receiving the deposit. This has now been extended 30 days for those deposits taken on or after 6 April 2012 as discussed below.
The intention of the legislation was to ensure that landlords returned deposits to tenants at the end of the AST, where payable and also to allow landlords to have a sum of money to cover any or a proportion of the rent/damages due at the end of the AST, if any.
The above obligations in the HA 2004 only apply to ASTs and the landlord and tenant cannot contract out of the above obligations.
The HA 2004 has been subsequently amended by section 184 of the LA 2011 on 6 April 2012 and on 26 March 2015 by sections 30- 40 of the DA 2015.The amendments are discussed below.
A summary of the relevant sections of the HA 2004 are below. These will be covered in more detail throughout this book.
Section 212 of the HA 2004
Section 212 provides a definition of a TDS as:
made for the purpose of safeguarding tenancy deposits paid in connection with ASTs and facilitating the resolution of disputes arising in connection with such deposits, and
complies with the requirements of Schedule 10 of the HA 2004.
Section 212 also makes provision for financial assistance to be offered to scheme administrators.
Section 213 of the HA 2004
Section 213 contains provisions on:
when landlords must join a TDS
the requirements in relation to prescribed information
preventing the parties from contracting out of the requirements.
Section 214 of the HA 2004
Section 214 contains the provisions in relation to the tenant making applications to the Court if the landlord has not complied with the requirements.
Section 215 of the HA 2004
Section 215 contains provisions on the sanctions imposed on landlords for non-compliance.
Schedule 10 of the HA 2004
Schedule 10 contains provisions relating to:
The types of TDS.
The termination of tenancies.
Notification to tenants of any requests made to the scheme administrator.
Service of documents.
The power of the appropriate national authority to amend Schedule 10.
Section 184 of the LA 2011
The HA 2004 did not set out any sanctions for the landlord’s failure to comply with the legislation. As a result, some landlords were simply not complying with the requirements and deposits were not being returned to tenants at the end of ASTS. In addition, those landlords who were trying to comply with the legislation, were struggling to register deposits received within the allocated 14 days.
To deal with these issues the LA 2011 amended sections 213 to 215 of the HA 2004 as follows:
It introduced a penalty to landlords for failing to comply with the HA 2004. If the landlord failed to register the deposit in a TDS and comply with the requirements of that TDS, the tenant was entitled to compensation in the sum of one to three times the amount of the deposit they had paid. The penalty applies even if the landlord has simply been late complying with the legislation.
It introduced a further sanction on landlords by stating that if the deposit is not protected in a TDS, the landlord will only be able to serve a notice pursuant to section 21 of the Housing Act 1988 (‘HA 1988’) once the landlord has rectified the breach by repaying the deposit or following determination, settlement or withdrawal of any claim.
It extended the right of the tenant to apply to the Court in respect of compliance so that it applied even if the AST has ended.
It extended the time for the landlord to pay the deposit into a TDS and serve the prescribed information on the tenant from 14 to 30 days.
Article 16 of the LA 2011 provided that the changes introduced by section 184 of the LA 2011 only applied to deposits received on or after 6 April 2012 and that the changes did not apply if the landlord had complied with the initial requirements of the TDS and given the prescribed information within 30 days from 6 April 2012 i.e. by 6 May 2012.
Sections 30-40 of the DA 2015
As a result of the provisions introduced by the LA 2011, lots of questions arose as to how the legislation applied in certain scenarios. On 26 March 2015, the DA 2015 sought to address some of the queries by making the following amendments to the legislation:
If there was a fixed term AST entered into before 6 April 2007 where the landlord took a deposit, that became a periodic tenancy after 6 April 2007 and was still in existence on 26 March 2015, the landlord was given 90 days from 26 March 2015 to register the deposit.
If the landlord took a deposit after 6 April 2007 and complied with the requirements the landlord’s compliance would suffice if that AST became, or becomes, a statutory periodic tenancy.
If the landlord received a deposit before 6 April 2007 and the AST became periodic before 6 April 2007 there is no financial penalty for failure to register the deposit.
It is acceptable to give the details of the landlord’s agent, in the Prescribed Information, if the agent protected the deposit at the outset of the AST.
These scenarios as well as further scenarios are discussed in chapter 6.
The Tenants Fees Act 2019 (‘TFA 2019’)
On 1 June 2019, the TFA 2019 came into force which introduced further protection for tenants of ASTS as it sets out a number of payments that landlords or agents were now prohibited from taking from tenants. In respect of deposits, paragraph 2 of Schedule 1 of TFA 2019 capped the amount that can be taken as a deposit to:
5 weeks rent where the annual rent under the AST is less than £50,000.00;
6 weeks rent where the annual rent under the AST is more than £50,000.00.
If a landlord accepts a deposit from a tenant above the caps set out it will be a prohibited payment under the TFA 2019, and the landlord will be expected to return the deposit. The landlord will not be able to serve a notice requiring possession under section 21 of the HA 1988 until they have returned the deposit to the tenant and may also be subject to a financial penalty.
The cap is based on the amount of the rent at the point of the grant, renewal, or continuance of the AST. Therefore, if the parties agree to reduce the rent part way through the term of an existing AST, there will be no need to reduce the amount of the deposit held. If, however, the parties agree to a new or renewal AST with a lower rent, the amount of the deposit would need to be reduced and part of the deposit returned to the tenant.
The HA 2004 introduced legislation on how deposits should be dealt with by landlords. There has been a number of amendments to the HA 2004 and the provisions relating to
deposits since the HA 2004 was introduced to try and address some issues that arose from its implementation. It is vital that landlords are aware of their requirements, so they do not fall foul of the legislation and face sanctions as a result.