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Landlords Beware: Law on Residential Tenancy Deposits May Affect You

Residential Tenancy Deposit

Is Your Tenancy Deposit Protected?

Are you aware that, following a Court ruling in December 2014, Residential Tenancy Deposits must be protected in an approved Tenancy Deposit Scheme even if they were received before the Tenancy Deposit legislation came into force in April 2007? Landlords will be unable to serve a valid Section 21 Notice to obtain possession of a property if the Deposit has not been protected.

What do Landlords need to do with Deposits?

When a Landlord receives a Deposit from an Assured Shorthold Tenant, the Deposit must be protected in an approved Tenancy Deposit Scheme within 30 days. This protects Tenants by keeping Deposits safe and ensuring that Landlords act fairly when making deductions from the Deposit.
There are two types of Scheme: Custodial (where the money is held by the Scheme) and Insured (where the Landlord retains the deposit and pays an insurance premium to the Scheme).

What happens if a Landlord fails to protect a Deposit?

If a Landlord fails to protect a Deposit there are financial penalties and, perhaps more significantly, the Landlord will be unable to serve a valid Section 21 Notice to obtain possession of the property.

What does the new Case Law say?

Prior to the recent Court ruling in Charalambous v Ng it was understood that the requirement to protect Deposits applied to:

Deposits received since April 2007 and Deposits received before April 2007 which have been retained because, in or after April 2007, either a new tenancy was granted or the original tenancy became periodic.

In December 2014 the courts confirmed that there is a further situation in which Deposits must be protected: Deposits received before April 2007 in respect of a tenancy that became periodic before April 2007. In such a case, a Landlord is unable to serve a valid Section 21 notice if the Deposit has not been protected. (However, no financial penalty applies in this case.)

What should Landlords do?

Landlords affected by this Court ruling should either protect the Deposit before serving a Section 21 Notice or return the Deposit to the Tenant. To refresh your mind on the subject of Tenancy Deposit Protection, have a look at our Guidance on Tenancy Deposit Protection for Assured Shorthold Tenants and our Guidance on Section 8 and Section 21 Notices which reflect the new law.

By Iain Mackintosh

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