Understanding Deposit Legislation

What is a deposit? 

A tenancy deposit is a sum of money which a landlord requires a tenant to pay at the start of the tenancy or which the landlord holds over from a previous tenancy with the same tenant. The money is security, in case the tenant does not meet their obligations in connection with the tenancy.

When setting up a tenancy most, if not all, landlords will require a deposit to secure against any damages, provable loss in case the tenant does not meet their obligations in connection with and at the end of the tenancy.

If a deposit is required and received; the landlord must put the deposit in a government-approved tenancy deposit scheme (TDP) if the property is rented out on an assured shorthold tenancy (AST) that started after 6 April 2007. 

Compulsory Housing Act 200 applies to Assured Shorthold Tenancy (AST) only. This means that company or holiday lets are not included in the current legislation.

Deposits with an annual rent of £100,00 have to be protected within a scheme (either custodial or insurance  backed) within 30 days of the deposit receipt.

Name 3 main providers are:

Tenancy Deposit Scheme

Mydeposits

Deposit Protection Service 

Prescribed information

As soon as the deposit has been protected the tenants and any party that has an interest in the deposit must be served with the scheme’s information and deposit identification / certificate number.

The penalties for failing to comply with this requirement will make a Section 21 in valid and can lead to fines.

A section 21 is a legal notice that a landlord can give to start the process to end an assured shorthold tenancy. Most private renters have this type of tenancy. You might be given a section 21 notice during a: rolling periodic tenancy. fixed term tenancy – if there’s a break clause.

Legislation that applies here is as follows: 

The specifics for Section 21 notices that landlords / agents have to adhere to are: S212, S213, S214, S215, S215A-C

Once the landlord (or managing agent) has received the deposit, they have 30 days to inform the tenant of:

  • The address of the rented property
  • How much deposit has been paid
  • How the deposit has been protected
  • The name and contact details of the tenancy deposit protection scheme (TDP) and its dispute resolution service
  • The landlords (or the letting agencies) name and contact details
  • The name and contact details of any third party that has paid / part paid the deposit
  • Information on why some or all of the deposit may be kept
  • Information on how to apply to get the deposit back
  • What to do if the tenant is unable to hold of the landlord at the end of the tenancy
  • What the process is  and what to do if there is a dispute over the deposit

Financial penalties 

There are considerable penalties for not registering the deposit depending on the size of the deposit held. Penalties are applicable if the deposit has either not been placed in a regulated scheme or registered within the required time frame. 

Penalties awarded against the landlord / agent can be between 1 -3 x the sum of the deposit although (some) mitigating circumstances can be taken into account. 

If the prescribed information has not been provided within the required time frame then a seeking possession of the property cannot issue a Section 21 or attempt to have it enforced.

And if you think this is just a landlord issue; it is not! The agent can be found equally or wholly liable for not protecting the deposit. A detailed explanation can be found in the Landlords Guild write up of the case of Draycott v Hannells 2010 where it was found that the agent who had received the deposit failed to place it with a deposit scheme.

As pointed out by Painsmith Solicitors – the person who it appears to the court is “holding the deposit” is the person who should repay or protect the deposit (if it hasn’t already been protected), not necessarily the person who “received” the deposit. So in this case the letting agent.

Why do you even need to know this?

As inventory providers it is our assertion that the more we understand about the housing and letting industry the better equipped we are to react to issues experienced by our clients. We are more able to support them, understand their ‘pain points’ and (hopefully) become their ‘go to’ resource when it comes to advice and guidance (within our remit of course!).