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Tenancy Deposit Schemes and the Landlord’s Penalty

On 6th April 2007, it became compulsory for landlords receiving tenancy deposits to pay them into a protection scheme within 14 days of receipt, and to notify the tenant of the details of the scheme.

If a court becomes aware that a deposit is not held in a scheme, it must order the landlord to pay three times the amount of the deposit to a tenant. Also, any s21 notice served by the landlord will be invalid. There have been many private landlords who missed the (mainly web-based) publicity for this provision.

As a consequence, the need to protect the deposit in this fashion has come as an unwelcome and expensive shock to certain landlords when they have taken tenants to court for not paying the rent, or for possession of the property.

There have been reports of varying county court decisions in the housing law press. As these cases usually involve smaller amounts of money, many have been dealt with by landlords acting in person. Also, the cases have not generally made it up to the Court of Appeal due to the legal costs outweighing the monies at stake.

It's been a matter for extensive legal debate among housing lawyers, and indeed differing court decisions, as to whether a landlord could escape the threefold fine by paying into a scheme during the lifetime of the tenancy, or just before a court hearing.

One case has however made it up to those lofty heights, and the Appeal Judges have given helpful clarification of a legal minefield. In Tiensia -v-Vision Enterprises Limited and Honeysuckle Properties -v- Fletcher [2010] EWCA Civ 1224, the drafting of the relevant law was criticised as unhelpful - but the upshot was that if a landlord realises the mistake and puts it right, even as late as the day before the hearing of the tenant's claim for a threefold penalty, the court will not order the penalty to be paid.

Doubtless there will still be some landlords who ignore the scheme and fail to take any legal advice on the way to court - and who thus face a rude awakening to this legislation from the District Judge. The majority will be able to escape such claims by late compliance - but if a tenant has written a letter before action, and had to issue a court claim to secure compliance, the landlord may still have to pay the tenant's costs.

It must be remembered that in possession claims, the validity of earlier notices is still subject to challenge if the deposit was not protected when the notice was served. Unprepared landlords may find that they face extensive further delay to those sorts of claims if they have not protected the deposit at the time their notices were served.

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