What should I do if I didn’t protect my tenant’s deposit in time?
The problem
A landlord must protect a security deposit within 30 days after receiving it. The period was extended from 6 April 2012 to 30 days.
Also, if a landlord received a security deposit before 6 April 2007 the landlord must protect the deposit by 24th June 2015. The consequences of failing to do so are severe, and the court requires strict compliance.
We have created a visual aid to guide you through the process, which you can access here.
What Is the Penalty for Not Protecting a Tenant’s Deposit?
Landlords who fail to protect a tenant’s deposit within 30 days could face penalties. The court can order the return of the deposit, and impose penalties ranging from one to three times the deposit amount.
Larger fines may be imposed if the deposit was not protected, rather than protected a few day late. The same sanctions apply if the landlord is a day late. The landlord can’t regain possession of the property by serving a section 21, if the deposit was not protected in time. They must first comply with the rules. The notice will be invalidated if the deposit is not protected. Any proceedings based on the notice will also fail. The tenant may bring a claim against the landlord if the deposit is not protected in time, or at all. The court can order that the tenant receives a sum up to three-times the deposit value and that the landlord refunds the deposit.
Small breaches are usually punished by a penalty equal to the deposit, while more flagrant violations can be punished up to three-fold the deposit. If the section 8 notice relies upon the tenant’s arrears in rent, the deposit claim may offset the arrears and prevent the landlord from relying on the mandatory grounds. The possession claim is likely to fail if the tenant’s claim for deposit completely eliminates the rent arrears. If the deposit is repaid, then the first sanction does not apply; a valid Section 21 notice can be served by the landlord (provided that all other requirements are met; see our blog on serving a valid Section 21 notice). If the deposit is repaid, then the first sanction does not apply; the landlord will be able to serve a valid Section 21 notice (provided the other requirements are made out; see our blog on serving a valid Section 21 notice).
The second sanction may also become less severe–if the landlord returns the deposit to the tenant, the court is more likely to order a lower penalty figure to be paid to the tenant.
Scenario 1: Immediate Steps to Resolve an Unprotected Tenant Deposit
Protect it and serve the prescribed information immediately or repay the deposit; either of these should minimise the impact of any adverse consequences. The court can order compensation and repayment up to three times a tenant’s deposit within 14 days. If a landlord does not follow the Deposit Protection legislation they cannot serve a Section 21 notice for vacant possession.
If a landlord is unable to serve a Section 21 notice, they will have to rely on Section 8, where the landlord must prove grounds for eviction. You do not need to comply with Section 8’s deposit legislation. The deposit must be protected, and the landlord must have sent all of the legally required information.
The deposit must be protected, and the landlord must have sent the legally required information.
How to Repay
It’s important to note that the landlord must prove that the deposit has been returned to the tenant. The landlord does not need to protect the deposit if he has the tenant’s bank account details. He can simply transfer the money into the tenant’s account and the bank statement serves as proof of payment. The landlord must follow the scheme’s procedures: he cannot use his own funds to pay back an amount equal to the deposit. The tenant may be able to avoid the return of the deposit by using the scheme. Until the scheme confirms the deposit has been returned to the tenant, a valid section-21 notice cannot be served. This may make it impossible to recover possession through the section 21 process. The landlord will either have to take the risk of relying on Section 8 proceedings or wait for the tenant to leave voluntarily.
Prescribed Information
The landlord’s deposit scheme also prescribes that the tenant be served with the necessary information within the timescales set out above.
Failure to serve the prescribed information will also result in the landlord being unable to serve a Section 21 Notice. The landlord can easily resolve this issue by serving the prescribed info before the Section 21 notice. However, as this failure is a more modest breach, any penalty will likely be at the lower end of the scale.
Recommendation
Landlords should protect deposits and serve prescribed information within 30 days.
If the deposit has not been protected in time, the landlord should return the deposit to the tenant. If the deposit is not returned, the landlord cannot obtain possession using the section 21 procedure.
If the prescribed information has not been served in time or there is no evidence that it has been served in time, the landlord should serve it before serving a section 21 notice.
Scenario 2: How to Manage Tenant Claims for Damages Arising from Unprotected Deposits
A tenant may be unaware of their right to claim damages. Some tenants may be willing to waive their right to claim damages if the experience of tenancy was positive. Some tenants will not waste time in bringing a claim.
If the tenant is about to leave and has not raised the issue of a non-protected deposit it may be worth a lenient approach towards routine deductions and letting some things go. It may be cheaper in the end.
If the tenant takes the landlord to court, a judge may look at the landlord’s behaviour in general before deciding the amount of the award. Unreasonable or unresponsive landlords could well face a higher penalty, a point to consider.
Landlords using a letting agent must be aware of an agent’s failure to protect a deposit. The law concerning this was altered in Section 214 of the Housing Act 2004.
Scenario 3: How to Proceed Following a Failed Eviction Due to Unprotected Deposits
There are two options. If you don’t have grounds for eviction, then try a Section 8 notice, which does not require the deposit to protected. If not, protect the deposit, issue the prescribed Information, and try again with a Section 21 Notice, ensuring there are no other flaws.
Section 8 Notices aren’t the preferred eviction route because they require a breach of the tenancy agreement and can take time.
Most sensible sources on tenant rights advise tenants to sue their landlord for compensation after the tenancy has ended. It may not be clear until the tenants leave the property if they plan to file a claim. However, a Section 21 Notice cannot be used less than four months from the start of the tenancy or if the fixed term has yet to end.
Understanding Tenancy Deposits
- For properties on an assured shorthold tenancy commencing after April 6, 2007, a landlord must place a tenant’s deposit in a government-approved tenancy deposit scheme (TDP). The tenancy deposit is the amount paid by the tenant to the landlord and held for the duration of the tenancy. The money acts as a security deposit in case a tenant does not meet their obligations as set out in their tenancy agreement, i.e., to cover the cost of any damages to the property during the tenancy.
- Once the landlord receives a tenant’s deposit, they must pay the money into a tenancy deposit scheme within 30 days, which holds the money safely until the end of the tenancy, and the full or partial sum is paid back to the tenant.
- Which Deposits Need to Be Protected?
As of 6 April 2007, the law states that all tenancy deposits must be protected by an authorised tenancy deposit scheme.
What Is the Tenancy Deposit Scheme?
The TDS is a UK government-authorised deposit protection scheme that holds tenancy deposits on behalf of landlords. The deposit is returned to the tenant at the end of the tenancy or held until any disputes have been settled. For example, the landlord may claim part or all the deposit in order to cover the cost for damages to the property. The two types are custodial and protected. The scheme provider retains any interest earned on the deposit.
An assured tenancy deposit scheme involves a landlord or agent paying a small amount to protect a deposit. The landlord will usually keep any interest earned. The tenancy agreement must state who owns the interest to avoid confusion or conflict. Contact Helix Law
It is easy to forget to register a tenant’s security deposit, especially if you own multiple properties. Failing to register a deposit can have serious consequences, so if you’ve forgotten to protect a tenant’s deposit, you’ll need to act quickly and seek the right professional advice to avoid penalties.
