Deposit Protection - A Dilemma
Since 6th April 2007, Landlords across England and Wales have been required to protect their tenants’ deposits in an authorised scheme.
However, there is still some confusion about the finer details of the law. I am often asked by Landlords whether they need to protect tenants’ deposits if they were paid before 6th April 2007 or where a periodic tenancy came into force after 6th April 2007.
The Court of Appeal in recent the case of Superstrike Ltd v Rodrigues [2013] has addressed this issue. The Court confirmed that it is necessary to protect a deposit in such circumstances. The implications of not doing so are best illustrated in a case I recently handled.
I was instructed by a Landlord, Bill, to regain possession of his property from his Tenant, Roger. Bill had granted a 12 month fixed term tenancy to Roger on 6th September 2006. When the tenancy began Roger paid a deposit of £700.00 to Bill. Bill did not need to protect the deposit at this time.
Roger continued to live in Bill’s property after the 12 month term expired in September 2007. However, in March 2013, Roger defaulted on his rent. Bill’s attempts to resolve things amicably with Roger were unsuccessful. Bill decided the only way to proceed was to obtain a Court Order for possession on the grounds of rents arrears.
Invalid section 21
Bill served a Section 21 Notice on Roger and sought my help to regain possession of his property. Having reviewed the Tenancy Agreement and the Section 21 Notice, I noted that the correct notice period had been given to Roger. However, when I asked Bill whether he had protected Roger’s deposit, he informed me that he had not done so because he did not believe this was necessary because the deposit was paid before 6 April 2007.
As Bill failed to protect Roger’s deposit after the fixed term of the tenancy came to an end, being 6th September 2007, the Section 21 Notice that he served was invalid. I explained to Bill that he had two options before being able to serve a valid Section 21 Notice on Roger: either return the deposit in its entirety to Roger, or obtain written authorisation from Roger to offset the rent arrears against the deposit.
If possession proceedings had been issued, the Court would have dismissed the application. Worse still, by failing to protect the deposit, Bill could have been liable for an award equal to or three times the value of the deposit he paid to Bill, if his tenant had made an application to the court. This would have been a penalty of £2,100.00 in Bill’s case.
So what became of Bill’s case? Roger refused to reach an agreement to offset the arrears against the deposit. With little choice, Bill released the deposit in its entirety to Roger. Once the deposit was released, I served a new Section 21 Notice on Roger on behalf of Bill. The Section 21 Notice is due to expire in October and Bill can then begin proceedings to repossess the property.
Landlord and tenant solicitors
If you are a Landlord you need to take care with deposits, even sometimes where they were paid several years ago. Best always to take legal advice if you are unsure.
