The Business Legal Services Blog

Why failing to protect a tenants’ deposit can have expensive repercussions

Although most landlords are aware they must protect tenants’ deposits, it is all too common for them to be overlooked. This month, Kris Little explains why ignoring the law can have expensive repercussions further down the line…

Lodging my tenants’ deposit with the prescribed schemes is a pain in the neck. Will anyone really notice if I don’t comply?

The tenancy deposit legislation applies to all new assured shorthold tenancies and has done so since April 2007.

The law specifies you must pay the deposit into one of the government-backed schemes within 30 days of its receipt, namely the Deposit Protection Service, MyDeposits or the Tenancy Deposit Scheme. You should also provide your tenants with prescribed information about where their money will be held and how it will be protected within the same timeframe. These rules apply even if the deposit was paid by a third party, such as a rent scheme or parents.

At the end of the tenancy, you must return the deposit within 10 days of an agreement being reached about how much you are paying back.

If you fail to comply with the legislation, your tenants may take court action. Should you be found to have not protected the deposit, you may be ordered to repay it to the tenant or lodge it with one of the schemes within 10 days.

This might not seem particularly onerous, but the court will also order you to pay the tenant compensation of up to three times the deposit amount within 14-days. This could leave you hundreds, if not thousands, of pounds out of pocket for simply ignoring such a basic requirement.

If at some point in the future you want to take possession of your property, the tenant may make a counterclaim if their deposit is not protected. The claim will need defending at your cost and the resulting judgement settled before possession proceedings can be carried out.

The Housing Act states that a Section 21 claim for possession cannot be issued if the tenants’ deposit has not been placed in a protection scheme and the prescribed information supplied. This is the case until the situation has been rectified or the money returned to the tenant in full (although this alone will not suffice).

It is, therefore, vital that you protect yourself by utilising the government deposit schemes. If you employ managing agents to let your property, you should check they too are complying with the law.

If you would like to discuss tenancy deposits in more detail, don’t hesitate to contact me or my colleague, Anna Pettinger. Email: anna.pettinger@tayloremmet.co.uk or call 0114 218 4000.

Leave a Reply

Your email address will not be published. Required fields are marked *