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Tenancy Deposits: why should they be protected?

A survey conducted by the Centre for Economics and Business Research has revealed that over a quarter of a million of Britain’s residential landlords are not complying with deposit protection rules and, as a result, £514m of deposits are unprotected, even though it has been mandatory to hold a tenancy deposit in a tenancy deposit scheme since 2007. 

What are Tenancy Deposits?

An Assured Shorthold Tenancy (AST) is the most frequently used tenancy agreement in the letting of residential properties.  It is not compulsory to take a deposit, but most landlords choose to do so as it gives a level of protection.  It means that if the tenant breaches the terms of the tenancy agreement, perhaps causing damage or not paying rent, the landlord can then make appropriate deductions from the deposit.

What is the legislation?

Under any AST, the landlord must place the tenant’s deposit in a government-backed tenancy deposit scheme within 30 days of receiving it.  The landlord must then provide the tenant with certain ‘prescribed information’, which includes details about the chosen deposit protection scheme and information about what happens if there is a dispute over the deposit.

Are there any exceptions?

In short, no!  Some landlords tried to collect, for example, 2 months’ rent at the beginning of the AST and then still collect the rent monthly so that they always held one month’s rent in advance.  The Courts have held that this effectively amounts to a deposit and so must be protected. 

What are the consequences?

If the deposit is not protected properly, the tenant can apply to the County Court and, if the landlord is found guilty, the Court can either order that the deposit is paid into a tenancy deposit scheme within 14 days to ensure the tenant is protected or they can in fact order the deposit is repaid to the tenant, leaving the landlord unprotected. 

In addition, the Court can order the landlord to pay a fine of up to three times the deposit.  The Court can also restrict the landlord’s ability to evict the tenant if the landlord has not used a protection scheme when they should have.

If you have concerns about a tenancy deposit, please contact Lochana Gabrielsen.