Deposits and Risks to Letting Agents and Landlords

When receiving a deposit in connection with an Assured Shorthold Tenancy, s213 of the Housing Act requires that the landlord, within 30 days of the date he receives a deposit, i) complies with the initial requirements of an authorised scheme; and ii) gives the tenant the prescribed information.

So what are the practicalities of this provision?

There are two types of authorised schemes: custodial schemes and insurance schemes. Under the former the landlord will pay the deposit to a scheme administrator, who will hold it until the tenancy comes to an end. Under the latter scheme the landlord retains possession of the deposit, but secures it by paying a fee and insurance premiums to the scheme administrator. The landlord is free to choose which scheme to use.

So what are the “initial requirements”?

Section 213(4) defines initial requirements as “such requirements imposed by the scheme as fall to be complied with by the landlord”. There is thus no statutory definition of the “initial requirements” and what these are will therefore depend on the contractual obligation between the landlord and the scheme. In Vision Enterprises Ltd v Tiensia [2012] 1 WLR 94 the Court of Appeal defined the “initial requirements” generically as “taking steps to protect the deposit”.

The landlord must also provide tenants with the prescribed information. The particulars of what the landlord must give the tenant by way of information is prescribed by the Housing (Tenancy Deposits) (Prescribed Information) Order 2007. In Suurpere v Nice [2012] 1 WLR 1224 the Court of Appeal held that the obligation regarding the prescribed information was of equal importance to the obligation to protect the deposit.

What happens if this is not done?

If “steps to protect the deposit“ are not done it will result in:

• S21 notice being invalid;
• s214 of the Housing Act allows the judge to sanction the Landlord or Agent up to three times the deposit amount. This can also be used as a counter-claim for all money related claims brought against the tenant.

What are the risks to Agents?

Sanctions

Draycott v Hannells [2011] WLR 1606 confirmed that action can be taken against the Landlord and / or the managing agent, or other parties that appear to be “holding the deposit”.

Okadigbo & Anor v Chan & Anor [2014] EWHC 4729 (QB) further confirmed conduct of the Landlord and parties could be considered when deciding the level of sanctions to be given with Khuja v Chowdhury [2015] EW Misc B18 (CC) indicating parties who “ought to know” about the deposit protection requirements will get 2 times the deposit amount sanctions while dishonesty will get 3 times. However judges hearing the case will have the final discretion.

Claims against Agents

Typically Agents deal with the deposit and are expected to do the same by Landlords, therefore if a claim has been brought against the landlord they can add the agents as “Part 20 Defendants” or issue a separate claim against the agent for their breach of duty and hold them liable for any damages and legal costs.

Action from Insolvency Agency

The Insolvency Agency has also recently taken given a number of decisions[1] where directors have been banned from acting as a director etc. due to action taken against them when they have failed to protect deposits in due time or served the prescribed information.

Further Reading

Our Deposit Guide
Nearly Legal Deposit overview
Letting Agent Complaint Tool

[1] https://www.gov.uk/government/news/north-london-letting-agent-banned-for-six-years-for-failing-to-protect-tenant-deposits and  https://www.gov.uk/government/news/director-of-hove-letting-agency-disqualified-for-10-years-after-failing-to-protect-customer-money