Tenancy Deposit Schemes – Timescales are of paramount importance
24th May 2011
The recent case of Potts v Densley and another [2011] EWHC 1144 (QB) should serve as a reminder to landlords about the law on Tenancy Deposit Schemes. Under the Housing Act 2004 there is a legal requirement from 6th April 2007 that landlords of new residential assured shorthold tenancies enter into a Tenancy Deposit Scheme to safeguard tenancy deposits paid to landlords by tenants. Such Schemes ensure that tenants’ deposits are protected until the expiration of the term of the tenancy unless there is a valid reason for a landlord to withhold repayment. Another benefit is that any disputes arising between landlords and tenants can be resolved through the Scheme rather than through the courts albeit both parties still have the right to apply to a court.
Under the Housing Act 2004 a landlord must comply with the initial requirements of a Tenancy Deposit Scheme within 14 days of receiving such deposit. In addition, there are strict requirements of the Tenancy Deposit Scheme Providers as to the information to be provided to a tenant on receipt of a deposit by a landlord. Important note: Failure to so comply can prevent a landlord from recovering possession of a property.
If a Court decides that there has been no compliance with the initial requirements of a Tenancy Deposit Scheme or, is satisfied that a tenant or relevant person (i.e. a person who paid the deposit on a tenant’s behalf), has not received confirmation of the deposit being held in accordance with the Scheme, then a court must order that either the holder of the deposit pays the deposit back to the tenant or relevant person within 14 days of the Order or, the holder of the deposit pays the deposit into an authorised custodial Tenancy Deposit Scheme again within such 14 day timescale. More significantly, a sum equal to three times the amount of the deposit must be paid to the tenant or relevant person within 14 days of the Court ordering the deposit holder so to do.
Caselaw is continuing to emanate from the above legislation in particular with regard to the 14 day timescale imposed on landlords for the depositing of monies into a Scheme. In Tiensia v Vision Enterprises Ltd (t/a Universal Estates) and Honeysuckle Properties v Fletcher and others [2010] EWCA Civ 1224, the 14 day timescale was not complied with by the landlord, resulting in the tenant making an application to the court for a penalty of three times the deposit sum. The Court of Appeal held that the landlord would be able to comply with the requirements of the Tenancy Deposit Scheme up until the date of the court hearing without incurring a penalty.
More recently in Potts v Densley and another [2011] EWHC 1144 (QB) the landlord had not protected the deposit until after the term under the tenancy had determined and the High Court held that the landlord did not have to pay the three times the deposit penalty in this particular instance.
However, landlords must be extremely careful when receiving deposits under assured shorthold tenancy agreements to ensure that legislation is complied with. A penalty of three times a deposit can of course be extremely costly and, until caselaw further clarifies the position regarding the 14 day timescale set out in the Housing Act 2004, one must act speedily upon receiving a tenant’s deposit.
Tracey Cartwright LLB (Hons) F.Inst.Pa
Certified Paralegal
