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Protecting your Tenant’s Deposit: Guide for Landlords

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Megan Dodds, Paralegal & Jack Waterfield, Trainee Solicitor | 4th June 2024

As a landlord entering a new tenancy agreement, you might ask your tenant to pay a “tenancy deposit”. Under the Tenant Fees Act 2019, the deposit should not exceed the equivalent of 5 or 6 weeks’ worth of rent, depending on the value of the annual rent.

It is not mandatory for a landlord to take a tenancy deposit – indeed, some landlords prefer not to take deposits in order to make their letting opportunities more attractive to prospective tenants. However, in the current rental market, tenancy deposits remain commonplace. This is because they can provide vital security to landlords against a tenant’s performance of their obligations under the tenancy agreement (for example, where the tenant fails to pay their rent or the costs of any utilities, or where they cause damage to the property).

There are several steps that you are legally required to take if you do choose to take a tenancy deposit. The purpose of this article is to guide you through your legal obligations and the consequences that you may face if you fail to deal with the deposit correctly.

Protecting Your Tenant’s Deposit

Suppose you have entered into an assured tenancy agreement or an assured shorthold tenancy agreement (AST) with your tenant that started on or after 6 April 2007. In that case, you are legally required (by section 213 of the Housing Act 2004, as amended by section 184 of the Localism Act 2011) to protect your tenant’s deposit with an authorised deposit scheme administrator.
This means that the deposit must be registered with one of the following three authorised tenancy deposit scheme administrators:


1) Deposit Protection Service (DPS);


2) Tenancy Deposit Scheme (TDS); or,


3) MyDeposits.


The deposit protection scheme is designed to protect the deposit throughout the duration of the tenancy, providing you with the opportunity to agree with your tenant on how the deposit will be dealt with at the end of the tenancy and, if appropriate, decide the deductions that may apply to discharge any obligations and liabilities under the tenancy (such as rent or utility arrears, or compensation for damage). If a dispute arises with your tenant as to how their deposit is to be allocated at the end of the tenancy, your scheme provider will provide you with the facilities to attempt to resolve this without recourse to litigation (i.e. Court proceedings).

There are strict timeframes that you will need to be aware of when protecting your tenant’s deposit. The deadline for protecting the deposit changes depending on when it was paid but, for deposits paid on or after 6 April 2012, these must be protected with an authorised scheme administrator within 30 days of receiving them.

Prescribed information

In addition, the law requires that you must provide your tenant with specific information relating to the tenancy deposit and chosen scheme within 30 days of receiving the deposit. This information is known as “prescribed information”.


Under the Housing (Tenancy Deposits) (Prescribed Information) Order 2007, the information you are required to give your tenant is as follows:

  • The name, address, telephone number, email address, and (if applicable) fax number of the authorised tenancy deposit scheme administrator;
  • Details about the deposit, i.e. the amount of the deposit and the address of the property;
  • The name and contact details of the landlord, plus contact details of both parties to be used by the scheme administrator if the parties are uncontactable at the end of the tenancy;
  • The name and contact details of anyone who paid the deposit on the tenant’s behalf (known as a relevant person);
  • Any leaflet provided by the scheme administrator with further information about how the deposit will be protected;
  • Details of the circumstances in which the deposit can be retained by the landlord at the end of the tenancy;
  • Details of the procedures that will apply in respect of repayment of the deposit at the end of the tenancy;
  • Details of the procedures that will apply in the event that there is a dispute over the deposit at the end of the tenancy and the facilities available under the scheme to enable the dispute to be resolved without recourse to litigation; and,
  • Confirmation from the landlord that the information given to the tenant is correct (to the best of their knowledge) and that they have given the tenant the opportunity to sign the document containing the above information to confirm that it is accurate to the best of their knowledge and belief.

Consequences of Failing to Protect Your Tenant’s Deposit or Failing to Provide the Prescribed Information

The consequences that could follow if you do not protect the deposit or do not provide the prescribed information are potentially severe. For example:

  • You will be unable to serve a valid section 21 notice on your tenant to evict them from the property. If you wish to evict your tenant under these circumstances, you may need to return their deposit first and/or provide the prescribed information.
  • The Court may decide that your tenant should not be required to leave the property when the tenancy ends.
  • Your tenant could apply to the Court for compensation. If they are successful, the Court could require you to return your tenant’s deposit and may also award compensation up to the value of 3 times the amount of the deposit per breach of the legislation.

Summary

In summary, protecting your tenant’s deposit and providing the prescribed information should be dealt with as an utmost priority, given the financial and practical consequences that may follow in the event of any failure on your part. If you have any questions or concerns over your handling of the tenancy deposit, we highly recommend that you seek legal assistance.

Expert legal advice

We are aware that things can often go wrong between landlords and tenants for many different reasons, and we also understand that these issues can be daunting and challenging to navigate.

At Bright Solicitors, we are committed to resolving disputes quickly and cost-effectively and our experienced Disputes and Litigation team is well-versed in reaching pragmatic solutions to a wide range of tenancy-related issues, including:

  • Tenancy deposit disputes;
  • Residential possession claims;
  • Dilapidations and disrepair disputes;
  • Contractual disputes;
  • Asset and debt recovery;
  • Tenancy agreement drafting and verification;
  • Professional negligence; and,
  • Commercial property disputes.

If you need legal advice regarding protecting your tenant’s deposit, or would like to know more about our services, please contact our specialist Disputes and Litigation Team on 01752 388883, or by email at disputeresolution@brightllp.co.uk.

Disclaimer:

This article is intended to provide general advice as it is a simplification of a complex area of law and must be treated as such. This article must not be relied upon as a substitute for substantive, specific legal advice. Before you take any action, please do contact our Disputes and Litigation Team so that we may provide you with advice that is appropriately tailored to your particular circumstances.