Tenancy Agreements and Deposits

Author: Charlotte Walker-Olivier

Since 6th April 2007 landlords have been required to place the deposit paid by tenants, in respect of most residential tenancy agreements, into an authorised tenancy deposit scheme. This requirement applies to the type of tenancy agreement most commonly entered into by private tenants: the assured shorthold tenancy.

The rules governing tenancy deposits are contained in the Housing Act 2004 (HA 2004). Failure by a landlord to place a tenant's deposit in an authorised scheme could make it impossible for the landlord to obtain a repossession order against the tenant - and even make them liable to pay compensation. (According to section 213 of HA 2004 a deposit in respect of a shorthold tenancy should only be in the form of money.)

Authorised Tenancy Deposit Schemes

There are two types of tenancy deposit schemes: custodial schemes, in which the deposit is paid into a special account; and insurance schemes, in which the landlord retains the deposit. The requirements for an authorised tenancy deposit scheme are contained in Schedule 10 of HA 2004. Regardless of the type of scheme chosen, the scheme performs a dual purpose: it protects the deposit and provides a system for resolving any disputes between the landlord and the tenant about what should happen to the deposit at the end of the tenancy.

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Landlords’ Obligations in Relation to Deposits

A landlord may not demand a deposit unless it is to be paid into an authorised scheme. Under section 213 of HA 2004 a landlord must comply with the "initial requirements" of an authorised scheme within 14 days of receipt of the deposit. The "initial requirements" may depend on the scheme chosen by the landlord. Also within 14 days of receipt of the deposit the landlord must provide the tenant with information about the tenancy deposit scheme and confirmation of the landlord's compliance with its initial requirements.

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Tenants’ Remedies for Breach of the Deposit Rules

Section 214 of the HA 2004 gives tenants the right to apply to the local county court if:

they believe that their landlord has failed to safeguard the deposit in an authorised scheme; – or,
the landlord has failed to comply with the "initial requirements" of an authorised scheme – for example, by providing the tenant with information about the scheme.

If someone else paid the deposit on the tenant's behalf that person may make the application to the court.

Where a judge is satisfied that a landlord has not fulfilled his obligations under the tenancy deposit rules he or she must take one of the following steps:

order whoever is holding the deposit to pay it back to the tenant – or to the person who paid it on their behalf; OR,
order the person holding the deposit to pay it, within 14 days, into an authorised, custodial scheme.

The judge must also:

order the landlord, within 14 days, to pay the tenant (or the person who paid the deposit) an amount equal to three times the deposit.

The HA 2004 gives judges hearing such applications virtually no discretion. If the judge is satisfied that the landlord has failed in his requirements, the orders described above should be made. However, in practice some judges may be reluctant to order the financial penalty if the breach was a failure to provide the required information within 14 days but the information had already been provided by the time the application was made.

Deposits and Repossession of Rented Properties

Section 215 of the HA 2004 imposes limitations on a landlord's ability to repossess a property if he is in breach of the tenancy deposit requirements. Section 215 states that a landlord may not serve a section 21 notice on a tenant if:

the deposit is not being held in an authorised scheme; or,
the initial requirements of the relevant authorised scheme have not been complied with; or,
the required information regarding the deposit scheme has not been provided to the tenant.

The landlord is also prevented from issuing a valid section 21 notice if the deposit was taken in a form which is not permitted under the HA 2004 - i.e. it was not in monetary form.

Failure to comply with the deposit rules can provide a tenant with an absolute defence to a repossession claim based on a section 21 notice. Such a claim is fatally flawed and should be struck out because a landlord cannot serve a valid section 21 notice unless the deposit requirements have been complied with.

The HA 2004 does not mention section 8 notices, therefore, failure to comply with the deposit rules may not invalidate a repossession claim based on a section 8 notice. However, the judge may take it into account when deciding whether to grant a possession order if the claim is based on discretionary grounds.

The Next Step

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4 questions

Ask Contracts and Agreements a Question

Loulou 11/10/2019 at 10:52 pm

I moved into a property my landlord stated he was the agent he has also signed my tenancy fraudulent as the owner of the property is supposed to be living there but he doesn’t even live in the uk he lives in Saudi there is no agent on my tenancy agreement what are my rights is my tenancy void

Gallie 29/07/2015 at 2:16 pm

We were renting at a B&B and i asked one of our guys still staying there to inform the owner at the begining of July that we will be leaving at Month end July 2015. start Aug 2015 She then told him that he can not give her notice i should and that i should do it in writting. he never conveyed the message to me or the owner never spoke to me about this. i called her today and tried to explain but she refuses to listen and request that we give her rent for the month of August. I spoke with the companies rep that pays her monthly, there has never been a contract signed or on record and as far as her knowledge we are renting on a month to month basis.

My question is: Do i have to pay her as the people staying there did inform her before hand that we will be leaving. And as per the office we are renting on a month to month basis so she respectfully doesn't have grounds to make a request like this.

fatfret1 03/08/2012 at 11:51 am

Is a tentent allowed to see the deeds to the property they are renting for the purpose of knowing about access in and around said property.

ken 10/07/2012 at 3:56 am

I have taken a 4 weeks rent in advance,and my tenant has run his rent in arrear by 3 months and he had a shorthold agreement, I have issued a section 21 notice for procession, so I have not taken a deposite or a bond can this 4 weeks be treated as a bond, has I have not put this 4 weeks rent in advance in to the deposite or bond system the 2007 actor does it need to go in to this.

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