Although the statutory deposit legislation has been in force for all assured shorthold tenancies created since 6th April 2007, and landlords and letting agents will therefore have become familiar with their duties to protect tenants' deposits in one of three statutory schemes, recent legislation has made a significant change to the penalties landlords will face if they fail to comply with the legislation.
The previous legislation had required landlords, or letting agents on their behalf, to protect any deposits paid by tenants at the start of their tenancies in one of the deposit protection schemes within 14 days, and provide certain prescribed information to the tenants about their rights in relation to their deposit within the same period. Landlords who failed to comply with these statutory duties faced financial penalties, but in reality if a tenant took their landlord to Court to pursue them for their failure to protect their deposit, but the landlord subsequently took steps to protect the deposit just before any Court hearing, the Court had no power to penalise the landlord even though they had failed to comply with protection of the deposit within the statutory timescales.
Judges had unsurprisingly expressed their dissatisfaction with this position, as the legislation had been intended to protect deposits paid by residential tenants and this was not actually working in reality. However, the deficiencies in the earlier legislation have now been rectified by the Localism Act 2011, which came into force on 6th April 2012.
Landlords now have a longer period to protect the relevant deposit and provide the prescribed information to their tenants, namely 30 days, but if they fail to do so within that period, the Court must order them to pay a financial penalty, even if they subsequently take steps to protect the deposit at a later date.
This is therefore strict liability, and even if this was a genuine oversight or as a result of simple error, the Courts have no discretion about ordering a financial penalty to be paid to the tenant as compensation.
The slight crumb of comfort for landlords is that the Courts do have some discretion about the exact amount of the financial penalty, as this can be between the actual amount of the deposit, and as much as three times the deposit amount. Landlords who therefore have a reasonable explanation for their failure to comply with the deposit legislation, and who rectify their error promptly, may be able to persuade a Court to order them to pay only the lowest penalty, but this would be still an additional cost to them that they may not have been expecting given the situation until the Localism Act came into effect.
Landlords should also still be aware of their inability to serve a section 21 notice on their tenant to end a tenancy when they are in default of the deposit legislation, so taking this into account with the financial penalties that now will be faced as well, it is vital that all landlords, and letting agents, review their existing deposits to check that they are not in breach.
If you would like further advice, please contact Katherine Wright, solicitor with Scott Rowe, on 01297 32345 or katherine.wright@scottrowe.co.uk
