New Tenancy Deposit Scheme legislation increases burden on landlords

Since section 213(1) of the Housing Act 2004 came into force on 6 April 2007 and on creation of a new residential assured shorthold tenancy (“AST”), landlords have been under an obligation to register their tenants’ deposits with a government-backed Tenancy Deposit Scheme (“TDS”). The government’s reasoning for introducing this obligation was to give tenants more security and to help prevent rogue landlords retaining the deposit unfairly. If the proportion of deposit to be returned is disputed, the TDS can be used as an independent mediator so that an agreement can be reached without the need for court proceedings.

This requirement to register their tenants’ deposits is well known to the majority of landlords. However, new legislation in the form of the Deregulation Act 2005 (“the Act”) has expanded this burden to landlords who received a deposit when entering into an AST before 6 April 2007. The Act even covers those tenancies that became periodic before 6 April 2007 and the aim was to clear up recent case law (on which we blogged here, here and here). An amnesty period of 90 days ending on 23 June 2015 has been allowed during which landlords must register the deposit with a TDS.

After this time landlords will be liable for financial penalties, although the tenant or a relevant person (someone who contributed to the deposit, for example a parent) will need to submit a court application.

Arguably the most significant sanction is that if a deposit was received when entering the AST, regardless of when it was entered into, the deposit must registered to allow a valid section 21 notice to be served on the tenant. Landlords who will be at risk are those with long term tenants and whose who have allowed an AST to continue into a statutory periodic tenancy after the initial fixed term.  Examples include landlords that operate without the help of an agent and who may be unaware of the changes. It is worth noting that some landlords will not be caught by the changes such as universities and those with licence agreements.

The financial penalty of not registering the deposit is a sum of money equal to between one and three times the deposit amount. Clearly, this fine could end up being considerable.

The Act says once and for all: if you are a landlord with an AST you must register your tenant’s deposit or risk financial penalties, and to enable you to recover possession in the future.