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Impact of the legislative changes to the Tenancy Deposit Scheme laws

The original tenancy deposit scheme rules were included as a late amendment to the Housing Act 2004, which came into force in April 2007. They were largely successful as now there’s a greater proportion of landlords protecting their deposits in a government authorised scheme. However, there is still a substantial rogue element failing to protect.

The original rules intended to deal with this by allowing the tenant to go to court and claim a penalty of three times the deposit sum. However, the drafting of the legislation resulted in two Court of Appeal decisions, which made this virtually unenforceable.

The decisions were:

  1. The landlord could protect the deposit out of time
  2. The clause did not apply once the tenancy had ended

Consequently, up to the 6th April 2012, landlords were in a good position. They could protect at any time up to the date before the court hearing and were ‘safe’ after the tenant vacated.

This has now all changed, and from the 6th April 2012, the rules are:

  • The landlord/agent will have longer to protect the deposit. It increases from 14 to 30 days.
  • After this time the landlord can still protect, but will not have a defence to a claim by the tenant for the penalty payment. If a case is brought to court and proven, it is mandatory for the judge to award in the tenant’s favour. The tenant will be able to bring a claim for this both during the tenancy, and up to 6 years afterwards, after which the statute of limitations kicks in. For the entire 6 year period, the landlord will be at risk if the deposit was not protected within 30 days.
  • The penalty payment is no longer fixed at three times the deposit amount, but at the discretion of the judge. The amount will be anywhere between 1 and 3 times the deposit sum.
  • The prescribed information remains as important as the deposit protection. Many agents make the mistake of relying on the information sent to the tenants by the scheme providers, but this does not meet the statutory requirements. The detail provided must refer the tenant to the actual clauses in the tenancy agreements that detail what the deposit can be used for, and the legislation also states that the landlord must provide this information, not the scheme provider. If the deposit is paid by another party e.g. a guarantor, they are classed as a relevant person, and must also have the prescribed wording.
  • Notice under Section 21 cannot be served to bring a tenancy to end unless the deposit is registered. There is a new sub section in the legislation which is going to be invaluable to Receivership stock. Section 215 (2A) makes provision for the deposit to be refunded during the tenancy to allow service of the notice. It also allows for agreed deductions so procedurally, the lender will repay a sum equivalent to the deposit which will be paid back to the tenant or offset against arrears. The legal challenge will be whether deductions must be agreed with the tenant, or, if an acceptance by the tenant of the arrears position will suffice. Alternatively Section 8 can be used if applicable where there is a sales strategy; Receivers may become more reliant on Ground 2.
  • Paul Jardine, Director and Joint Receiver at Templeton LLPA comments: “Clearly, there is a rather onerous responsibility placed upon Receivers in ensuring that their letting agents are compliant and diligent when securing tenants and processing applications appropriately, and in accordance with this legislation. As you are aware, Templeton LPA carefully monitors our third party suppliers such as letting and managing agents, and should any of our suppliers fail to adhere to these requirements, we will act swiftly.”

Lucy Jones, Operations Manager at LSL Corporate Client Department, and Fellow of ARLA, with a specialism in lettings legislation comments: “The legislation was not drafted with Receivership cases in mind, and our concern from a property management perspective is our respective positions on cases where no deposit is held. The wording of the legislation makes the landlord responsible for compliance at the point the deposit is received. What is not known is whether the courts will view that the Receiver can be held responsible for the actions of the borrower. Steps have been taken, both within Templeton and suppliers like ourselves at LSL CCD, to build a robust audit trail on all existing and new cases to show that all attempts have been made with both the occupier and the borrower to establish the details of any deposit that may have been paid at the outset of the tenancy. We will advise on a case by case basis where we feel it appropriate to request funds to facilitate the ability to serve notice and the possession process.”

For more information on how the Tenancy Deposit Scheme changes will impact your business, please speak to Paul Jardine, or visit the CML LPA Seminar, which is being held at the Midland Hotel, Manchester on 22nd May.

David Burgess presents at the CML LPA Seminar in London

David was invited to speak at the Council of Mortgage Lenders 'Appointing and Using an LPA Receiver' seminar on 7th June 2011 at the Mayfair Conference Centre. The seminar was attended by a wide range of lenders and suppliers and David presented on the theory and practice of LPA Receivership, you can download a copy of David's very well received presentation here.

Louisa Sedgwick, Director of Louisa Sedgwick Interim Management commented 'David gave a very insightful presentation, with some good contrasting results which covered both the positive and negative aspects of LPA Receivership. He also gave a good overview of the Receivership model and applied 'common sense' to the process in a customer friendly manner. As a fellow presenter on the day, I was delighted to see that David's presentation took into account both the needs of the customer and the lender alike'

 

Templeton LPA is a subsidiary company of LSL Property Services plc.
Registered in England with company number 06507759. Registered office: Newcastle House, Albany Court, Newcastle Business Park, Newcastle, NE4 7YB.

Part of the LSL Property Services PLC Group