Protecting tenancy deposits: will the changes make it work?

Deposits are often taken by landlords when they grant an assured shorthold tenancy (AST). This provides the landlord with some redress at the end of the tenancy, should the property have been damaged or if rent is owed. However, many tenants find it hard to recover these deposits, with little option for dispute resolution if an agreement cannot be reached.

The Housing Act 2004 introduced significant reforms, geared towards protecting deposits for tenants. Any deposit taken must be protected with one of the tenancy deposit schemes set up by the Act and dispute settlement is now available. In plain English? Landlords that accept a deposit from a tenant must contact a recognised provider of tenancy deposit schemes as soon as possible to arrange to pay the deposit into such a scheme.

It all sounds pretty simple… so what has now changed? A series of decisions, including two in the Court of Appeal, revealed shortcomings in the legislation.

In Vision Enterprises (t/a Universal Estates) v Tiensia [2010] the landlord failed to comply with the initial requirements but later returned the deposit. The court decided that compliance before the tenant started proceedings or by the date of the hearing equated to a defence, meaning that the penalties didn't apply.

In Hashemi v Gladehurst Properties Ltd [2011] the court held that the penalties no longer applied once the tenancy has come to and end.

As a result of these cases, and others, the provisions have been amended.

What do you need to know:

• Section 213, which has been amended, sets out the initial requirements for a landlord when it receives a deposit. One of these is to give the tenant information about the AST scheme. Previously this had to be done within 14 days. This has been extended to 30 days.
• Section 214 relates to proceedings surrounding tenancy deposits. Under the amendments the tenant may make an application to the county court if the provisions set out above, in section 213, have not been complied with. Under a new part to this, this now applies when a tenancy has ended as well.
• It remains the case that the court must order the return of the deposit, if it agrees that there is a case to answer. However, the changes now allow the court to order the landlord to pay a penalty, in addition to the deposit, of not less than the deposit and not more than three times the deposit. As a result the court can now draw a distinction between a case where the landlord genuinely made a mistake and where the failure to comply was deliberate.
• Previously a landlord was not allowed to serve a section 21 notice, seeking possession of the property, if a claim was in process. This has now been removed.

These changes may seem to make things fairer for both landlords and tenants. However, things are far from clear and we may see, over time, things changing again. One thing does seem clear, as things stand, for landlords that fail to comply, the consequences could prove expensive.