Dispute Resolution specialist Jonathan Hill of Harding Evans Solicitors answers some important questions for landlords and tenants regarding the new Tenancy Deposit Scheme.

 

1. What is it and why is it important?
The new Tenancy Deposit Scheme started in England and Wales on the 6th April 2007 as a result of the implementation of the Housing Act 2004. The legislation aims to remove the risk that some landlords or agents may misappropriate tenants deposits, as well as providing a quick means of resolving disputes about deposits.


2. Who does it apply to?
The new legislation applies to both landlords (and agents such as letting agents) and tenants where an Assured Shorthold Tenancy has been entered into or a new tenancy commences after 6th April 2007 and the tenant has paid a sum of money to the landlord as a ‘deposit’ or ’bond’.


3. What does my landlord need to do?
Once the deposit is received by the landlord, he must protect the deposit by paying it either into what is called a “Custodial Scheme” (where a designated third party will keep the deposit until the end of the tenancy) or an “Insurance Scheme” that will ensure the deposit until the end of the tenancy. The landlord must within 14 days from the date that the deposit is received provide the tenant with the following information:
• The details of the landlord or his agent
• How the deposit has been protected and who with
• When the deposit will be returned
• What the tenant needs to do in the event that there is a dispute about the amount of deposit to be returned.


4. My landlord has not provided me with any information about what he has done with my deposit. Is there anything I can do?
Yes. If a landlord receives a deposit and hasn’t protected it or provided a tenant with the information outlined above, the tenant is entitled to apply to the Court for certain orders. If the Court finds that the landlord has not complied with the Scheme’s requirements, the Court must order the return of the deposit to the tenant and pay to the tenant a sum equivalent to 3 times the value of the deposit.

For example, if a tenant pays a £500 deposit to their landlord and their landlord has not provided the tenant with the information outlined above and hasn’t protected the deposit under one of the two schemes, the Court will order the landlord to pay to the tenant the sum of £2,000 (being the return of the £500 deposit and 3 times the value of the deposit).

5. I am a residential property landlord. What other ways will the new legislation affect me?
In addition to potentially having to pay compensation to the tenant, the landlord will be unable to serve upon the tenant a Section 21 Notice requiring possession when a deposit is held otherwise than in accordance with the scheme. You will therefore be unable to rely upon the Accelerated Possession Procedure at Court.

Either a landlord will need to pay back the deposit to the tenant before serving the Section 21 Notice or normal possession proceedings will have to be commenced by a landlord relying upon other grounds for possession (such as rent arrears).

However obtaining possession is likely to take longer and be more costly. It may also be the case that tenants who seek to resist a Possession Order being made will claim the deposit compensation by way of counterclaim against your application for possession.


6. What happens at the end of the tenancy and what if there is a dispute about the amount of deposit to be returned to the tenant?
When the tenant leaves a landlord should attempt to agree the cost of any work needed to the property with the tenant and how much of the deposit is going to be returned. The Custodial Scheme will pay the agreed sum back to the tenant direct. If the Insurance Scheme is used, then the landlord will return all or some of the deposit to the tenant.

If there is a dispute as to the amount to be returned, then both schemes offer a dispute resolution procedure where the disputed amount is held until the dispute is resolved. If the parties are unable to agree using this process, then the last option available will be to proceed with their dispute via the County Court.