Under the Housing Act 2004, landlords in England and Wales have a legal requirement to protect their tenant’s deposit. Compliance with these regulations is essential to avoid significant penalties. If you are a landlord or thinking of becoming a landlord in areas such as Dagenham or Romford, or anywhere in England and Wales, the tenancy deposit rules must be adhered to.
This article explains the requirements to protect tenancy deposits for landlords and the potential consequences if you fail to comply with the regulations.
What are the rules for deposit protection?
Since April 2012, private landlords are required to protect their tenant’s deposits using a government-approved tenancy deposit protection scheme (DPS) within 30 days of receiving the money. This helps to ensure that tenants don’t face issues at the end of the tenancy when they request their deposit back. The deposit protection scheme prevents landlords from unfairly and unreasonably retaining their tenant’s deposit.
The landlord is also required to provide the Prescribed Information to tenants within 30 days of receiving the deposit. The Prescribed Information includes:
- Deposit amount.
- Property address.
- Details of the deposit scheme provider including name, address and contact details.
- Name, address and contact details of the tenant and landlord. If anyone else has contributed towards the deposit, their details must be included too.
There is a 30-day limit on returning the deposit to the tenant at the end of the tenancy and if the tenant has met the terms of the tenancy and not caused damage to the property, the deposit should be returned within this timeframe.
There are three government-authorised schemes that landlords should choose from:
What happens if you don’t protect the deposit?
Failing to protect a tenant’s deposit is a serious matter with significant consequences including county court proceedings and financial penalties. These are the potential consequences landlords face if they do not protect the deposit paid by their tenants:
1 You will likely face court action
A landlord may face court action if they do not protect their tenant’s deposit or do not meet the required deadlines. The courts may decide to impose financial penalties if they decide that you have not taken the correct actions to protect your tenant’s deposit. Penalties can range from around 1-3 times the deposit amount or can be larger if there was no protection in place at all.
2 Repaying tenants’ deposit or protecting it
The first step to rectifying the situation is to repay the deposit to the tenant. It is essential that you have evidence of the repayment. If the deposit is still in your bank account, you should transfer it back into the account that the tenant made the payment from. The repayment will therefore be evidenced by a bank statement.
In the situation where the deposit was put into a deposit protection scheme, but this was after the deadline, the landlord will need to raise a request with the deposit scheme provider to transfer the money back to the tenant. The landlord must not use their own funds to repay the deposit if it is in a deposit protection scheme, as they will not be able to serve a section 21 notice to recover possession until the DPS confirms that the deposit has been correctly repaid to the tenant.
3 You will owe compensation to tenants
In many cases, the court can order the landlord to pay compensation to the tenant, which will generally fall between 1 and 3 times the amount of the deposit. The court will review the circumstances of the failure to protect the deposit and decide what penalty is suitable. The penalty will usually be required to be paid within 14 days of the court hearing.
4 You won’t be able to evict using Section 21
If the landlord has not protected the deposit, this means that they will not be able to serve a section 21 notice to recover possession of the property. Due to the landlord’s breach of the tenancy deposit scheme rules, the section 21 notice would be invalid.
It is possible to try to recover possession using a section 8 notice if there are grounds for eviction under the tenancy agreement, such as rent arrears, but there is a chance that the tenant could claim against the landlord for failing to protect their deposit.
5 Your tenants might be allowed to stay longer in the property
There is also a possibility that the court could decide that the tenant is allowed to remain in the property for a longer period. If the court reviews the circumstances of the failure to protect the tenant’s deposit and deems that the tenant should be granted more time to find alternative accommodation, this is another penalty the landlord will face.
I haven’t protected the deposit – what do I do?
If you have not protected your tenant’s deposit, you should return the deposit as soon as possible. If the deposit has been repaid, you are still able to serve a section 21 notice and the financial penalties will usually be lower too.
If you fail to protect your tenant’s deposit, it is important that you take action to rectify the situation immediately to minimise your financial penalty and other unwanted consequences. If you would like advice on tenancy deposit scheme rules or any other aspect of managing a rental property in Essex, Chelmsford, Colchester, Harlow, Southend on Sea or beyond – contact us today.
