Tenancy Deposits

When determining a private rented tenant’s right and their landlord’s obligation, the important question will be when the private rented tenant actually paid the deposit to the landlord/agent.

This is extremely important as it may afford a tenant a defence if the private landlord seeks possession of the property given the security of tenure of assured shorthold tenants.

 The following should help understand private rented tenant’s rights dependent on when the deposit was paid.

Check out our new guide

1) Tenancy started on or after 6 April 2012

If paid on or after 6 April 2012, the private landlord has to:

  • Protect the deposit with a Government scheme within 30 days.
  • Provide the tenant with certain required (prescribed) information within 30 days
  • Return the deposit within 10 days of the tenancy ending

2) Tenancy started between 6 April 2007 and 5 April 2012

 a) If the landlord did not protect the tenancy deposit before 6 May 2012, it order to comply with the law they should by 6 May 2012:

  • Protect the rent deposit in a Government-backed scheme;
  • Provide the tenant with certain (prescribed) information about the protection of the deposit (including any booklets).

 b) If the landlord does not protect the tenancy deposit before 6 May 2012, the tenant has the potential right to take court action. The court can possibly order the landlord to protect the deposit and/or order the landlord to pay the tenant compensation.

If a tenant has an assured shorthold tenancy before 6 April 2012 and the landlord did not protect the tenancy deposit with a Government-backed scheme before the tenancy ended, the rent deposit is classed as an unprotected rent deposit. If the landlord has not returned the rent deposit, or there is a dispute with the landlord about how much of the deposit should be returned, the tenant may have to go to Court to get it back

3) Tenancy started before 6th April 2007

STOP PRESS – New Amendment pending  – as above all pre-2007 have to be protected within 90 days of commencement of the bill – http://www.legalnotebook.co.uk/housing/deposit-deposit-deposit/

a) If a tenant did sign a new assured shorthold tenancy agreement with the same landlord for the same property on or after 6 April 2007, then as long as the tenancy still exists the landlord has to:

  • protect the tenancy deposit if the tenant paid the deposit before 6 April 2007, and

the original tenancy agreement started before 6 April 2007 but has been renewed since this date with another assured shorthold tenancy agreement for a fixed term with the same landlord.

If the tenancy was renewed before 6 April 2012, the landlord had to do the following by 6 May 2012:

  • protect the rent deposit with a Government scheme
  • provide the tenant with certain (prescribed) information about the protection of the deposit.

If the tenancy is renewed after 6 April 2012, within 30 days of receiving the deposit the landlord has to:

  • protect your rent deposit with a government scheme within 30 days
  • provide you with certain required information within 30 days.
  • Must return the deposit within 10 days of the tenancy ending.

If your tenancy does not exist, your rent deposit is classed as an unprotected rent deposit.

 b) If the tenant did not sign a new assured shorthold tenancy agreement with the same landlord for the same property on or after 6 April 2007, but if the deposit was paid before 6th April 2007 and the tenant has an assured shorthold tenancy agreement that started or was last renewed before April 2007, the rent deposit is classed as an unprotected rent deposit.

c) If however the tenancy becomes a periodic tenancy (period starting after 2007) the deposit is required to be protected. (see Superstrike below).

Has the deposit been protected?

Private landlords need to protect their tenant’s deposit in one of these schemes.

Tenants are able to check online whether the deposit paid has been protected by providing information about the tenancy. Given the changes in the law which came into force on 6 April 2012, landlords must protect a tenants’ deposits within 30 days of a tenancy starting, therefore you should check the date the deposit was secured.

A private landlord who protects a tenancy deposit within the time limits is allowed to end the tenancy by giving the tenant two months/Section 21 notice. So a private landlord who applies late to protect the deposit following the service of the Section 21 notice will not be able to evict the tenant using the notice unless certain conditions are satisfied.

Court Action?

If the landlord has not protected the deposit, even if the tenant has asked the landlord to protect it in writing, the tenant can proceed to make a claim at their local County Court asking the Court to order that the landlord place there deposit in a Government-backed scheme. A Court has the power to also order a landlord to pay a tenant compensation of between 1 to 3 times the value of the deposit if they:

  • only protect a tenant’s deposit after 30 days
  • fail to give the tenant details of the scheme used within 30 days
  • fail to protect the deposit.

However, tenants must be cautious of proceeding with Court action, as this will not only persuade the landlord to protect the deposit, but is also enable the landlord to serve the tenant with a Section 21 notice giving the tenant 2 months to leave the property.

Deductions following a Tenancy ending

It is not uncommon for a private landlord to make deductions from tenancy deposits paid by a private rented tenant.

If the landlord seeks to make deductions from a tenancy deposit, the tenant should ask the private landlord/agent for a breakdown of any amounts deducted from the deposit. Usually, landlords seek to argue that deductions are made because of normal wear and tear of having resided in the accommodation; this is unlawful. To prevent this, it is advised that both private landlords and tenants agree an inventory at the start of the tenancy to avoid these disputes over deposits later on.

So if there is a dispute over the amount being deducted from the tenancy, you should firstly consider that if your deposit was protected (as required), each Government-based scheme has an alternative dispute resolution (ADR) service – which aims to resolve any disputes the need or expense of having to go to court.

However, it is vital to note that when the tenant and landlord both agree to use ADR, then both will have to accept any decision made as part of the process and will not be able to apply to the County Court if they disagree with it. If the tenant and landlord do not agree to use ADR, then County Court action can be taken.

Reasonable deductions

A tenancy deposit is money that belongs to a tenant and should be returned to the tenant unless the landlord can show they have suffered a financial loss during the tenancy. The landlord is usually responsible for returning the deposit even if initially paid to a letting agent acting on their behalf. Many landlords who have used agents, will usually seek to argue that the agent was responsible for securing and returning the deposit – but the tenant should look at their tenancy agreement to determine who is responsible.

The landlord can make reasonable deductions from the deposit for:

  • damage to the property
  • missing items
  • cleaning
  • unpaid rent.

Even if the landlord has a valid reason for keeping part of the deposit, the rest of it should be returned. A tenant should ask for receipts or estimates for items deducted from the deposit. Tenants should also take photographs of the property before leaving to prevent any further problems.

Further, the landlord cannot deduct costs for re-letting the property such as advertising or agency fees – even if the tenant lawfully releasing himself from the tenancy or the agreement expires.

Deductions for damage

The landlord can only make deductions from the tenancy deposit for that which is needed to repair or replace what the tenant has damaged on a ‘like for like’ basis.

Deductions for cleaning

Tenancy agreements often state that parts of the accommodation must be cleaned (so it may be re-let in such a condition) prior to the tenant moving out. However, the tenant only needs to make good damaged items, and not required to make good items which become worn and torn.

Deductions if the tenant owes rent

If the tenant owes rent when they leave, the landlord is entitled to deduct this from the deposit. If the tenant owes more than the value of the deposit the landlord can commence County Court/Money Claim proceedings to get the rest of the money back.

Withholding rent

It is not uncommon for a private rented tenant to withhold rent, either because they do not want to continue residing in the property or need to move out urgently. However, if the tenant withholds rent, the landlord is likely to not return the deposit (at all or in full). Also, as the tenant is legally liable to pay rent, the landlord could potentially commence County Court/Money Claim proceedings to get the rest of the money back.

Moving towards clarity on Tenancy Deposits: 3 Court of Appeal cases

Despite the recent case law which helped explain the interpretation of the law on tenancy deposit, it seems while the Courts have dealt with an individual outstanding issue moving towards some clarity there are issues that still raises questions.

Superstrike Ltd v Rodrigues [2013] EWCA Civ 669
(http://www.bailii.org/ew/cases/EWCA/Civ/2013/669.html)

In this case, R paid SL a deposit of £606.66 (a month’s rent) having commenced an assured shorthold tenancy before April 2007, when the Housing Act 2004 provisions came into force. The tenancy began in January 2007 with a term of 12 months which expired in January 2008. However, R became a statutory periodic tenant thereafter.

In June 2011, SL served a Section 21 Notice on R and commenced possession proceedings. In May 2012, the possession claim was dismissed, though for reasons not at issue in this appeal. On appeal to a Circuit Judge, a possession order was granted on the basis that the deposit had been taken before April 2007.

An appeal was sought from the Court of Appeal on the ground that following the statutory periodic tenancy arising in January 2008, a deposit was received in respect of a tenancy, which fell under the requirements of s.213 HA 2004. R argued that SL’s failure to protect the deposit meant s.215 (Housing Act 2004) applied and the Section 21 Notice was invalid.

The Court of Appeal asked itself two questions:

 1)      Did the statutory periodic tenancy constitute a new tenancy?

At Paragraph 27, LJ Lloyd stated, “what happens at the end of the fixed period tenancy is the creation of a new and distinct statutory tenancy, rather than, for example, the continuation of the tenant’s previous status.”

2)      Had the deposit been ‘received’ by the SL in respect of that tenancy in the meaning of s.213?

SL sought to argue that s.213 only applies when the deposit is “physically received” after 6 April 2007 (para 35). R argued that “even though no money changed hands… nevertheless the landlord had to be treated as having received the amount of the deposit, referable to the new tenancy, on 8 January 2008.” (para 29).

The Court of Appeal agreed with R. It concluded that R did pay, and the SL did receive, the sum of £606.66 as a deposit in respect of the new periodic tenancy in January 2008, and so the obligations under s.213 applied to the deposit received. Those obligations were not performed. It follows that s.215(1) applied so that SL could not validly give notice under s.21 of the 1988 Act. The notice purportedly given on 22 June 2011 was ineffective and the grounds for possession were not made out.

As R did not claim for the return of the deposit and a penalty under s.214, the only order the Court could award was for the dismissal of the possession claim.

The outstanding issue

Although R had argued, even if the provisions of s.213 (Requirements relating to tenancy deposits) had not applied to the deposit as a result of the creation of the statutory periodic tenancy in 2008, nonetheless s.215(1) (sanctions of non-compliance) applied to prevent a s.21 notice from being served whenever a deposit is held which is not held in accordance with an authorised scheme. Whilst the Court could “see the basis for this argument” and if correct “it would have had extensive consequences when the legislation first came into force, since it would have required any deposit to be put into an authorised scheme before the landlord could serve a section 21 notice after the commencement date, even if there would have been no other obligation to do so under section 213. It is not clear how significant would be the effect of this point now, six years after the provisions first came into force”

However, the Court stated “is not necessary to decide it for the purposes of determining this appeal. For that reason, I prefer not to deal with it but to leave it to be decided in a case in which it matters, if one such were to arise”.

Charalambous & Anor v Maureen Rosairie Ng & Anor [2014] EWCA Civ 1604 has since stated, in relation to a tenancy started in 2002 which then became a periodic tenancy in 2005 and s21 notice served in October 2012; that a deposit needs to be protected if it is held by the Landlord. If this is not done the s21 notice is invalid but sanctions do not apply

Ayannuga v Swindells (2012) CA (Civ) 6 November 2012.
(http://www.bailii.org/ew/cases/EWCA/Civ/2012/1789.html)

In this case, T had paid a deposit and L had protected it in one of the approved schemes but he had not given the prescribed information as required by the Housing (Tenancy Deposits)(Prescribed Information) Order 2007. T allegedly fell into rent arrears and L sought possession. T counter-claimed on the basis of lack of compliance with the above Order. L admitted non-compliance with the Order but argued that the requirement was largely procedural, that the purpose of the legislation was to protect deposits (which was done) and that T could have found out the rest of the information by contacting the scheme administrator. The lower Court dismissed T’s claim holding that information in the tenancy agreement coupled with the further information provided by L during the hearing was enough to comply with the requirements of the Order.

T appealed to the Court of Appeal. Etherton LJ and Lewison LJ disagreed entirely with L. It held that the information requirement under the Order was not merely a minor procedural one. They were of real importance as they told tenants how they could seek to recover their money and how they could dispute deductions without litigation. The CA held L was clearly in violation of the order and the penalties of s214 of the Housing Act 2004 applied. Therefore L was ordered to return the deposit plus a penalty equivalent to three times the deposit.

This decision gives tenants an additional way of defending possession actions based on s.21 of the Housing Act 1988 or on rent arrears. However, arguably if the purpose of the Tenancy Deposit schemes was to reduce litigation from the County Court, this would have the opposite effect if landlord’s fail to comply with the Order.

Johnson v Old [2013] EWCA Civ 415
(http://www.bailii.org/ew/cases/EWCA/Civ/2013/415.html)

In this case, the CA addressed the issue of rent payable in advance. The case is relevant as private landlord are increasingly asking for rent in advance (of up to 6 months in advance) from private rented tenants on low incomes or those who have a poor credit status.

O took a tenancy of a property. She had a good credit history but no immediate income and so she was offered a 6 month tenancy with the rent payable six monthly in advance. The tenancy was very poorly worded and expressed the rent as actually payable monthly and every 6 months. The tenancy was renewed several times eventually become a periodic tenancy with rent payable monthly. J sought possession following a s.21 notice served and O sought to defend the claim arguing when the notice was served the deposit (the six months advance rent) had not been protected.

The CA held that there was a single outstanding issue – was rent in advance security? After stating that a payment as security is intended as an assurance that the liability is to be discharged at some future time, it held the money paid by O in advance, could not be taken as security for the discharge of a liability, but rather a discharge of the liability to pay rent. In other words, rent paid is advance does not need to be protected in the same way as deposits.

Further Reading and Updates