Residential landlords: The trappings of the Tenancy Deposit Scheme registration requirements
October 30, 2014
It has been more than 7 years since the designated Tenancy Deposit Schemes (TDS) became compulsory for landlords in April 2007. In accordance with the Housing Act 2004 (as amended by the Localism Act 2011), every landlord of a property rented out under an Assured Shorthold Tenancy agreement (AST) is under a strict obligation to register a deposit paid by a tenant at the beginning of a new tenancy and for that deposit to be entered into a designated TDS. There are two such types of government backed schemes available to landlords, namely Custodial Schemes and Insurance Schemes. Further information on both schemes is contained within Schedule 10 of the Housing Act 2004.
The statutory provisions
In accordance with Sections 213-215 of the Housing Act 2004, a landlord must:
- Register a tenancy deposit within the Statutory Time Limit (30 days from receipt).
- Provide the tenant with certain Prescribed Information confirming the registration details for the deposit within the Statutory Time Limit.
- Comply with the initial requirements of the particular TDS entered into.
Old news you might say. However, what is perhaps less well-known is that these requirements have been the subject of recent case law (discussed further below) and have significant implications for landlords in the context of statutory periodic tenancies where a tenant remains in occupation beyond the fixed term of the original AST.
Article 2 of the Housing (Tenancy Deposits) (Prescribed Information) Order 2007 sets out the Prescribed Information that a landlord is required to provide to a tenant so as to comply with section 213 of the Housing Act 2004. This includes both generic and specific information regarding the tenancy and is known collectively as a Section 213 Notice. This must be accompanied by the relevant scheme’s information leaflet and providing the information alone will be insufficient to satisfy the legal requirements.
Ultimately, each and every time a “new” AST is entered into (either on a fixed-term or statutory periodic basis), where a deposit is being held by the landlord the requirement to serve the Prescribed Information on the tenant will be triggered and therefore needs to be re-served within 30 days of the new tenancy starting. This will be necessary even where the deposit in question is only being held over and a failure to provide the necessary information within the relevant timeframe will be a breach of the Housing Act 2004.
The practical impact of the TDS requirements for a pre-April 2007 AST has been the subject of much case law but most notably so in the Court of Appeal’s decision of Superstrike Ltd v Rodrigues  EWCA Civ 669. Here, the Court held that a deposit taken in relation to an AST entered into before 6 April 2007 was required to be registered where the initial fixed term had expired and the tenant had remained in occupation under a statutory periodic tenancy.
The effect of Superstrike upon a post April 2007 AST was recently considered in the county court case of Gardner v McCusker (unreported) 8 May 2014 where the deposit in question had already been registered. Following the decision in Superstrike, the judge ruled that, in accordance with the statutory provisions, a landlord must take further steps to fully register the deposit where a tenant remains in occupation of a property after the initial fixed AST term has expired.
Impact of non-compliance
A landlord and/or deposit holder will be subject to certain penalties enforceable by the TDS provider or the Courts themselves in situations where it has failed to comply with the requirements, namely:
- A notice served under section 21 of the Housing Act 1988 requesting possession of the property may be invalidated where the deposit has not been properly safeguarded and the prescribed information has not been provided to the tenant.
- A tenant may be entitled to bring a claim against its landlord requiring it to either register the deposit correctly or repay it to the tenant and pay out compensation of up to three times the amount of the deposit.
Steps to be taken
If the landlord (or a managing agent acting on their behalf) has any concerns about whether the requirements have been complied with, steps will need to be taken to clarify and/or rectify the position on an urgent basis and before the Statutory Time Limit expires so that the landlord can demonstrate that the rules have been complied with.
Where the 30 day period has expired, the landlord will already be in breach of the law. There are however certain circumstances where the TDS provider can exercise its discretion in allowing a landlord to protect a deposit beyond the Statutory Time Limit, but only where the tenancy has not already expired. Landlords who are concerned that they might be in breach of the provisions should consult their relevant TDS provider for further information.
If the landlord is out of time to register the deposit under a TDS and/or they have been informed that their provider is unwilling to exercise its discretion, the landlord will be in a difficult position. This will be particularly so where a landlord has either already served a Section 21 Notice to regain possession of the property, or is considering taking steps to do so.
In all likeliness and for the reasons set out above, where possession proceedings have already been started, if the landlord is not able to demonstrate that the tenancy deposit registration requirements have been complied with, they will be unable to rely upon Section 21 Notice to recover possession. It is possible therefore that the proceedings will need to be discontinued and the process started all over again but only once the registration requirements have been complied with before serving a new notice on the tenant.
The most pragmatic solution that a landlord can take would perhaps be to return the entire deposit amount to the tenant (although they might want to consider the implications of having no deposit monies held back at the end of the tenancy). In doing so, the AST would no longer be subject to the registration requirements and the landlord would be free to serve a new Section 21 Notice upon the tenant to obtain possession.
The recent case law has been significant in establishing the parameters of the TDS requirements in practical terms. As a result, the necessary steps that landlords are required to take when registering a tenancy deposit under an AST will be considered unnecessarily bureaucratic and burdensome for those affected, particularly insofar as private landlords are concerned.
The promise of parliamentary proposals for a reform of the current legal position will be of little comfort to landlords or their managing agents as it will do nothing short-term to resolve the current situation and the inevitable backlog of Superstrike and Gardner landlords, who until now, may not have been aware of the full extent of their obligations.
Until such change is brought about, landlords should take heed that failure to comply with the registration requirements, however trivial, will have a significant impact upon how they can take possession back of their properties in the future.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.