Tenancy Deposit Schemes - Consequence of Failure to Register a Deposit
KEY ISSUE: It is essential to register tenant’s deposits in a Tenancy Deposit Scheme. Failure to do so can have serious financial consequences which may be avoided even by late compliance with the legislation.
Landlords are required to register tenancy deposits for all assured shorthold tenancies under one of three government-authorised tenancy deposit schemes (TDS).
In summary, the landlord is required to:
- protect the deposit in a scheme offered by one of the three government-approved scheme providers
- comply with the initial requirements of the chosen scheme and
- provide the tenant with certain relevant information within 14 days
If a landlord fails to comply with the above requirements to register a tenancy deposit, the sanctions available to the tenant against the landlord are set out as follows:
- The court must order the landlord to repay the deposit and pay a statutory penalty of three times the amount of the deposit to the tenant.
- The landlord will not be able to effectively serve a s21 notice to recover possession of the property.
Since the legislation came into force on 6 April 2007, there have been a number of cases clarifying the law in relation to the statutory penalty of three times the deposit value.
Draycott v Hannells Letting Limited  EWHC 217
This is a case in which the letting agents registered the deposit in accordance with the statutory requirements but not within the required 14 days of receipt from the tenants. The tenants made an application to the Court for a statutory penalty to be imposed on the landlord for failure to lodge the deposit with the TDS within 14 days of receipt. The Court held that the legislation requires (i) the deposit is protected and (ii) it is protected within 14 days. However, the penalty provisions only apply to (i) and not (ii). Therefore, as long as the deposit has been protected (prior to proceedings), the penalty of three times compensation does not apply.
Tiensia v Vision Enterprises Limited (t/a Universal Estates)  EWCA Civ 1224
This case provided important clarification of the position on the relevant time for compliance with the initial requirements and providing the prescribed information to the tenant.
The Court held that so long as the deposit has been protected and the requirements complied with prior to the hearing date the landlord will have a complete defence to a claim by a tenant to repay the deposit and will not be liable to pay the statutory penalty. However, a landlord may be liable for the costs of the tenant’s claim where protection was achieved after the claim had been issued.
The Court also confirmed that a Section 21 Notice served after the deposit had been protected, albeit late, will be valid, their reasoning being that the intention of the legislation was not to impose a permanent bar on the recovery of possession in these circumstances.
Landlords take note…..
A landlord’s compliance with the requirement to register a deposit is an important one and failure to register can have serious financial consequences. However, these recent cases allow landlords an opportunity to remedy a failure to comply with the legislation and avoid these penalties. The important thing is to be aware of your obligations and act quickly to remedy any compliance failure, particularly before seeking to serve a notice to determine a tenancy.
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.
15 August 2011