Landlord duties – tenancy deposits

Since 6 April 2007, it has been mandatory for a landlord to join a scheme to protect a tenant’s deposit. The landlord must comply with ‘initial requirements’ of an authorised Tenancy Deposit Scheme within 30 days from the date of receipt of the deposit. Protection of the deposit is crucial if a landlord is to retain possession rights and avoid liability for non-compliance.

Since 6 April 2007, it has been mandatory for a landlord to join a scheme to protect a tenant’s deposit. The landlord must comply with ‘initial requirements’ of an authorised Tenancy Deposit Scheme within 30 days from the date of receipt of the deposit. Protection of the deposit is crucial if a landlord is to retain possession rights and avoid liability for non-compliance.

What are the Tenancy Deposit Scheme options?

A landlord may choose between two different types of TDS:

1) A custodial TDS requires the landlord to pay the deposit to a scheme administrator within 30 days of receipt from the tenant. The scheme administrator holds the deposit until the tenancy comes to an end. The deposit (or balance due to the tenant) is then returned to the tenant.

2) Under an insurance TDS, the landlord retains possession of the deposit but secures it by paying a fee and insurance premiums to the scheme administrator. The scheme administrator will pay the tenant should the landlord misappropriate the deposit.

Initial requirements

The landlord must comply with ‘initial requirements’ of an authorised TDS (and give the tenant certain prescribed information) within 30 days from the date of receipt of the deposit. For deposits received before 6 April 2012, the time limit was 14 days. If a landlord fails to protect a deposit, they may be ordered to pay compensation to the tenant and could be prevented from recovering possession of the property.

Tenancy deposits received before 6 April 2007

New legislation dealing with TDSs came into force on 6 April 2007 and only had effect on tenancies entered into on or after that date. Therefore, many landlords thought that tenancies entered into before then would not be caught by the new legislation and deposits would not have to be protected.

However, if an assured shorthold tenancy entered into before 6 April 2007 involved an initial deposit and, at the end of the fixed term (on or after 6 April 2007), a new tenancy agreement or statutory tenancy was created, that original deposit had to be safeguarded thereafter through a TDS and the prescribed information provided. This has been confirmed in the case of Superstrike Ltd v Rodrigues [2013] .

Superstrike Ltd v Rodrigues

On 8 January 2007, Mr Rodrigues (R) took an assured shorthold tenancy of a flat from Superstrike Ltd (S) for a fixed term of one year. R paid one month’s rent as a deposit.

At the expiry of the fixed term, a statutory tenancy arose and R continued to reside in the property. On 22 June 2011, S served a Section 21 requiring possession. When R did not leave the property at the end of the notice period, possession proceedings were issued.

The legal proceedings ended up in the Court of the Appeal, which had to decide whether S was entitled to serve that notice, as the deposit had not been placed in a TDS. S argued that the deposit was paid in January 2007, before legislation concerning TDSs was implemented and therefore the deposit did not need to be placed in a scheme. R argued that, when the new statutory tenancy arose, the deposit should have been treated as being paid in respect of that new tenancy. At the time the statutory tenancy arose, the deposit should have been protected by a TDS.

The Court of Appeal held that the statutory tenancy was a new tenancy and that the legislation requires that a tenant’s deposit be held in accordance with a TDS at the point when the statutory tenancy arises (provided that happens after 6 April 2007). Since the deposit was not held in accordance with a TDS, the landlord was not entitled to serve a notice under Section 21 and not entitled to possession.

Conclusion

Once a fixed term tenancy expires, and the tenant remains in possession, a landlord must make arrangements for the deposit to be held in accordance with a TDS if he wants to preserve the right to serve a Section 21 notice. The decision in Superstrike caused speculation and concern, leaving many wondering what the wider impact could be. However, until tested further in the Courts, the decision has limited effect.